ISA March 2015 Country
Report
Turkey
The ISA March 2015 Turkey Country Report
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Turkey: Key Facts
Overview:
• Turkey was the center of the vast Ottoman Empire that
controlled most of the Middle East and Southeast Europe
during its apex.
• Following the fall of the Ottomans, modern Turkey was
created by Mustafa Kemal Ataturk, who promoted a rapid
modernization and secularization of the country.
• Turkey’s large Kurdish minority has consistently pushed for
more autonomy, and this has led to periods of violence
between Kurdish separatists and the Turkish military.
• Turkey is a member of NATO and has applied for European
Union membership.
• Turkey is rapidly developing a large industrial base, which is
playing an increasing role in the Turkish economy.
• Turkey’s location at the crossroads between Europe and
Asia makes it one of the most strategically important places
on the planet.
The ISA March 2015 Turkey Country Report
Key Facts and Data:
• Official Name
– Republic of Turkey
• Capital
– Ankara
• Government Type
– Republican parliamentary democracy
• Head of State
– President Recep Tayyip Erdogan (since 2014)
• Head of Government
– Prime Minister Ahmed Davutoglu (since 2014)
• Population
– 80,694,000
• Land Area
– 770.760 sq. km
• Total GDP (US$)
– $822 billion
• Per Capita GDP at PPP (US$)
– $18,800
• Currency
– Turkish lira
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Table of Contents
Current Events:
Economic Outlook:
• Recent Political Events
• Economic Overview
• GDP Growth Forecasts
• Key Sector Forecasts
• Inflation Forecasts
• Foreign Trade Forecasts
• Foreign Investment Forecasts
• Exchange Rate Forecasts
• Outlook for Key Sector
• Key Economic Issue
• Economic Risk Outlook
• Recent Economic Events
• Other Recent Events
Political Outlook:
• Overview of the Current Government
• Leadership Profile
• Summary of the Most Recent Elections
• Leading Party #1
• Leading Party #2
• Leading Party #3
• Leading Party #4
• Forecast for the Next Elections
• International Relations Outlook
• Potential Conflict #1
• Potential Conflict #2
• Military Capabilities
• Key Political Issue
• Political Risk Outlook
The ISA March 2015 Turkey Country Report
Demographic & Environmental Outlook:
• Population Overview
• Population Characteristics
• Development of Leading Urban Centers
• Key Demographic Issue
• Topography and Climate Overview
• Environmental Threat Summary
• Key Environmental Issue
• Demographic and Environmental Risk Outlook
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Current Events and Recent Changes Overview
The ISA March 2015 Turkey Country Report
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Turkey: Recent Political Events and Changes
Key Political Events and Changes:
• The government continued its crackdown on the supporters
of exiled cleric Fethullah Gulen. In addition, Turkey has
issued an arrest warrant for Mr. Gulen, who is living in exile
in the United States.
• The government’s efforts to pass a tough new security bill
in early 2015 raised fears that President Erdogan was
positioning himself to be able to squash all dissent without
opposition.
• The government reiterated that it would not launch ground
operations against the Islamic State militant group in Syria or
Iraq.
• Rival Kurdish groups battled one another and with Turkish
security forces in southeastern Turkey in recent months as
Turkey remaining unwilling to equip Kurdish forces battling
the Islamic State across the border in Syria.
• The Marxist DHKP-C group claimed that it carried out
January 2015’s suicide bomb attack in Istanbul that left two
people dead.
The ISA March 2015 Turkey Country Report
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Turkey: Recent Economic Events and Changes
Key Economic Events and Changes:
Economic Highlight:
• Turkey’s economic growth rate fell to just 1.7% on a yearon-year basis in the third quarter of 2014.
• Exports from Turkey declined by 9.8% year-on-year in
January 2015 due to weakening demand in most of Turkey’s
key export markets.
• Turkey’s inflation rate fell sharply 7.2% year-on-year in
January 2015.
• Turkey’s central bank cut interest rates by 50 basis points
to 7.75% in January 2015, and more rate cuts are expected
in the coming months.
• The lira weakened sharply against the US dollar and many
other currencies in February 2015 and has lost nearly 80% of
its value against the US dollar since 2013.
Source: ISA
Economic Forecasts,
national statistics
• President Erdogan once again criticized the country’s
central bank, raising fears about the central bank’s ability to
retain its independence.
• Turkey’s unemployment rate rose to 10.7% in November
2014.
The ISA March 2015 Turkey Country Report
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Turkey: Other Recent Events and Changes
Other Key Events and Changes:
• Turkey warned that it would need more help to deal with the
increasing number of refugees from Syria that have been
entering the country in recent months. By early 2015, there
were more than 1.5 million Syrian refugees in Turkey. A new
influx of Syrian Kurds fled to Turkey in recent months.
• The country’s education council called for religious classes
to be made compulsory for all children in the country’s
nursery schools.
• President Erdogan inflamed tensions with secular women in
Turkey when he claimed that women were not equal to men.
• In January 2015, the government authorized the first new
Christian church to be built in Turkey in more than 90 years.
The ISA March 2015 Turkey Country Report
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Turkey Political Outlook
The ISA March 2015 Turkey Country Report
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Turkey: Current Government
Overview:
• The AKP’s overwhelming election victories in the last three
national elections has left them in complete control of the
Turkish government.
• Prime Minister Erdogan won a clear victory in August
2014’s presidential election in Turkey, the country’s first-ever
direct election for the presidency. He moved to the
presidency later that month.
• After August 2014’s presidential election, AKP leaders
selected Foreign Minister Ahmet Davutoglu to be Turkey’s
new prime minister.
The ISA March 2015 Turkey Country Report
Key Members of the Government:
• Head of State
– President Recep Tayyip Erdogan
• Head of Government
– Prime Minister Ahmet Davutoglu
• Minister of Foreign Affairs
– Mevlut Cavusoglu
• Minister of Finance
– Mehmet Simsek
• Minister of the Interior
– Efkan Ala
• Minister of Justice
– Bekir Bozdag
• Minister of Defense
– Ismet Yilmaz
• Minister of Science, Industry and Technology
– Fikri Isik
• Minister of Economy
– Nihat Zeybekci
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Profile of President Recep Tayyip Erdogan
Background:
President Erdogan was first selected as prime minister in 2002
following the landslide victory in that year’s elections by his Justice
and Development Party (AKP).
• He had been banned from running in those elections due to an earlier
conviction for reading an Islamic poem at a party function.
• A change to the constitution allowed him to become prime minister in
2003 as Abdullah Gul served as prime minister between the election and
Mr. Erdogan’s reinstatement.
• He led the AKP party to further election victories in 2007 and 2011.
• In 2014, Mr. Erdogan ran for the presidency and easily won Turkey’s firstever direct presidential election.
President Erdogan is a conservative Muslim, but has not moved to
end the country’s secularist tradition.
• In recent years, he has focused his efforts on boosting Turkey’s economic
competitiveness and improving Turkey’s relations with its neighbors.
President Erdogan has managed to take away much of the Turkish
military’s political power, the first Turkish leader that has achieved
this in modern times.
• Nevertheless, Turkey’s secular opposition and many elements of the
country’s armed forces remain opposed to his policies.
The ISA March 2015 Turkey Country Report
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Turkey: Most Recent Elections
Presidential Election – August 2014
Summary of the Last Elections:
Results:
Prime Minister Recep Tayyip Erdogan decided to run for
the presidency after the country’s electoral system was
changed to allow for the direct election of the
presidency in Turkey.
• Eventually, Mr. Erdogan won a clear victory in 2014’s
presidential election, winning 51.8% of the vote in the first
round, thus avoiding the need to contest a run-off election.
• The former general secretary of the Organization of Islamic
Cooperation, Ekmeleddin Ihsanoglu, finished a distant
second with 38.4% of the vote.
• The Kurdish political leader Selahattin Demirtas finished in
third place with 9.8% of the vote.
The presidential election campaign was dominated by
Prime Minister Erdogan’s candidacy and his bid to
strengthen the office of the presidency.
• The secular opposition in Turkey accused Mr. Erdogan of
becoming much too autocratic and seeking to weaken the
political opposition.
The ISA March 2015 Turkey Country Report
Source: National
election authority
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Turkey: Most Recent Elections
Parliamentary Elections – June 2011
Summary of the Last Elections:
Results:
Prime Minister Erdogan and his AKP party won a third
term in office in June 2011’s parliamentary election, but
had its number of seats in the parliament reduced.
• The AKP party won 50% of the popular vote and 326 of the
550 seats in the parliament, just shy of the 331 seats they
won in 2007 and not enough seats to make changes to the
constitution without the support of the political opposition.
• The country’s secular opposition party, the Republican
People’s Party (CHP), gained 23 seats to win 135 seats in
total, while the far-right Nationalist Movement Party (MHP)
lost 18 seats to now hold 53.
The AKP’s desire to win enough seats to change the
country’s constitution was the dominant issue in 2011’s
national election.
• Moreover, the AKP was strengthened by the strong
performance of the Turkish economy in the years before the
election, with Turkey outperforming most of its neighbors
during the global economic crisis in 2008 and 2009.
The ISA March 2015 Turkey Country Report
Source: National
election authority
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Turkey’s Leading Political Forces:
Justice and Development Party (AKP)
History:
The AKP currently is the governing party of Turkey and
is easily the largest party in the country.
• It is the main successor to the outlawed Islamist Welfare
Party and its successors.
• Under the leadership of President Erdogan, the AKP has
strengthened its grip on power and made major gains in each
of the last three national elections.
Source: National
election authority
Key Policies and Stances:
• The AKP supports a greater Turkish role in the politics of the
Middle East and a stronger Turkish voice on the world stage.
• The party has followed a policy of maintain good relations
with all of Turkey’s neighbors.
• The AKP has also supported the IMF’s economic reform
packages for Turkey that have boosted the country’s
economic competitiveness in recent years.
• The AKP has cooled towards the European Union, after
initially favoring Turkish membership in that organization.
Outlook:
The AKP are the latest incarnation of a mainstream Islamist
political force in Turkey to gain a wide following.
• However, the party faces strong opposition from secularist
opponents, including many military leaders who have
threatened to have the party banned if it pushes to change the
country’s secular institutions.
• Nevertheless, the party has survived a number of attempts to
have it banned thanks to its overwhelming popularity.
The ISA March 2015 Turkey Country Report
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Turkey’s Leading Political Forces:
Republican People’s Party (CHP)
History:
The CHP is the second-largest political party in Turkey
and is the leading secularist political force in the
country.
• The CHP has consolidated the center-left of Turkish politics
under its banner.
• The CHP regained some of the support in recent years after
suffering major defeats during elections in the previous two
decades.
Source: National
election authority
Key Policies and Stances:
• The party is a leading proponent of liberalizing Turkey’s
economy, an about-face from previous center-left parties.
• The party has been a vocal opponent of the United States’
increased military presence in the Middle East.
• The party is opposed to any changes in the secular nature
of Turkey, but has relaxed its stance towards conservative
Muslims in recent years.
Outlook:
Despite the dominance of the AKP, the CHP will remain a
force in Turkish politics for many years to come due to its
nationwide organization.
• Nevertheless, the rise of nationalist parties holds significant
threats for the CHP.
• The party made gains in 2011, but remains well behind the
AKP in terms of overall support.
The ISA March 2015 Turkey Country Report
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Turkey’s Leading Political Forces:
Nationalist Movement Party (MHP)
History:
The Nationalist Movement Party has benefited from the
rise in nationalism in Turkey in recent years.
• The party qualified for representation in the parliament
following its strong showing in the 2007 national elections and
remained in the parliament despite losing seats in 2011.
• The party’s support comes primarily from Turkey’s Anatolian
heartland.
Source: National
election authority
Key Policies and Stances:
• The MHP is the most nationalist of all major parties in
Turkey.
• The MHP wants Turkey to develop closer ties with the Turkic
peoples in Central Asia.
• The party has been a leading proponent of taking a strong
position against Kurdish separatists.
Outlook:
The MHP’s future outlook has improved thanks to the rise
of nationalist sentiment in Turkey in recent years.
• For the party to continue to grow, it will need a major falling
out with the EU or the IMF in order to once again promote
nationalist sentiment in Turkey.
The ISA March 2015 Turkey Country Report
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Key Political Issue in Turkey
European Union Membership
European Union leaders begin accession talks with
Turkey in 2005.
• The agreement was threatened by Turkey’s refusal to
officially recognize Cyprus, but a deal was reached
whereby the Turkish government will avoid doing so
directly.
• The talks officially started in mid-2006, despite protests
from Cyprus and have progressed it fits and starts since
that time.
Turkish membership in the EU is unlikely to occur at
any time in the near future given the declining support
for Turkish membership in the EU, both from within
Turkey and within EU member states.
• Recent polls have shown that a majority of Turkish voters
are now opposed to EU membership for Turkey, while
many EU member states have called for a referendum on
Turkey’s bid for membership.
• Moreover, EU member states have questioned the
Turkish government’s commitment to democratic principals.
Potential Hurdles
• Referendums on Turkish membership in a
number of European Union countries.
• Veto of Turkish membership by Cyprus or other
EU countries.
• Rejection of EU demands by the Turkish
parliament or military.
• Human rights or economic violations that end
negotiations.
• A rejection of future EU constitutions in any
country holding a referendum.
Turkish membership in the European Union is not likely in the coming years and may
not occur at all. What is certain is that there is widespread opposition to Turkish
membership in many European Union countries and these objections must be
overcome before Turkey can join the EU as a full member.
The ISA March 2015 Turkey Country Report
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Key Political Issue in Turkey
The Power of the Generals
The Turkish army sees itself as the protector of
Ataturk’s legacy in Turkey.
• Ataturk was the founder of modern Turkey and the leading
proponent of Turkey’s modernization and secularization.
• The army has staged three coups since 1960 and was the
main force behind the removal of the previous Islamist
government in 1997.
The generals oppose many of the concessions the
government has made to improve Turkey’s chances of
EU membership.
• These includes potential concessions with regards to
Cyprus and the Kurds.
• In recent years, the AKP-led government has arrested
dozens of high-ranking military officers in connection with
an alleged plot to overthrow the Erdogan government,
weakening the armed forces’ influence in Turkish politics.
Previous Interventions of the Army
1960 Coup
The ten-year reign of the Democratic party was ended
and Prime Minister Menderes and others were
hanged on charges of corruption.
1980 Coup
The army took over the government and implemented
martial law following widespread violence between
leftist and rightist forces.
1997 Intervention
The army forced Islamist Prime Minister Necmettin
Erbakan to resign and eventually banned his Welfare
Party from politics.
The latest attempt to curb the power of Turkey’s generals has gone well for the AKP
government thus far, but the army continues to wield significant power. The generals
know, however, that another coup may signal the end of Turkey’s hopes to join the EU
and will thus refrain from reacting to these reductions of their power.
The ISA March 2015 Turkey Country Report
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Turkey: International Relations Outlook
Key International Disputes:
• Turkey has a history of conflict with most of its neighbors
and some of these disputes carry forward to the present day.
• The three most volatile disputes in the coming years will be
the on-going Kurdish question, the water dispute with Syria
and Iraq and the continuing rivalry with Greece.
• Moreover, Syria’s civil war has seriously destabilized
Turkey’s southern border.
International Relations Outlook:
• Turkey’s attempts to join the European Union will go a
long way towards defining its future role in international
affairs.
• Meanwhile, Turkey will face a number of challenges along
its borders as well as with its large Kurdish minority that has
close ties to the Kurdish populations in Iraq, Iran and Syria.
The ISA March 2015 Turkey Country Report
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Potential Flashpoint: Cyprus
Flashpoint Summary
Although Cyprus peacefully
declared independence from the
United Kingdom, Greece and
Turkey in 1960, efforts by Greek
Cypriot nationalists wanting to
reunite with Greece led to a coup
d'état in 1974.
Turkey then invaded under the
pretext of protecting Turkish
Cypriots, establishing the Turkish
Republic of Northern Cyprus in the
northern third of the island.
With the discovery of oil and
natural gas reserves in the
“Leviathan Field” off the southeastern coast of Cyprus, tensions
have risen between the Republic
of Cyprus and Turkey.
Potential Outcomes
Main Actors
Global Implications
Republic of Cyprus
• The Republic of Cyprus is
seeking to reestablish sovereignty
over the whole island
Cypriot Oil and Natural Gas
• Cyprus has the potential to be a
new source of oil and gas for
energy-hungry Europe.
Turkish Republic of Northern
Cyprus
• The Turkish Republic of Cyprus
claims sovereignty over the
northern third of the island and is
recognized as a state by Turkey.
EU Membership
• The issue of Cyprus has been
the biggest obstacle facing
Turkey’s potential membership in
the European Union.
Turkey
• Turkey demands that the island
be reunified before any drilling or
exploration for oil and gas is
conducted by the Republic of
Cyprus.
Maps
Turkey’s Rising Power
• Turkey’s power and influence in
the Middle East and Southeastern
Europe is clearly on the rise.
European Union
• Cyprus’ EU membership has
strained relations between the EU
and Turkey.
• Turkey’s growing power and influence forces Greek Cypriots to take a closer look at steps to reduce fears of Greek domination of a unified Cyprus,
paving the way for a peace deal.
• Rising tensions between Turkey and Greece lead to clashes in Cyprus that could lead to a wider war.
The ISA March 2015 Turkey Country Report
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Potential Conflict: The Kurds
Main Disputes:
• The Kurds make up nearly 20% of Turkey’s population, but
their culture is suppressed.
• While most Kurds are integrated into Turkish society, a
minority remain fiercely devoted to the Kurdish identity.
• Turkey fears that an autonomous (and prosperous) Kurdish
region within Iraq could attract Kurdish separatists from
Turkey.
• Turkey is investing billions of dollars to improve the
economic situation in the poor Kurdish areas in the
southeast.
Best- and Worse-Case Scenarios:
• Best Case Scenario
– Turkey’s drive for improved relations with its
neighbors results in improved relations between
Ankara and Turkey’s Kurdish minority as well as
with Kurds in neighboring countries.
• Worst-Case Scenario
– Kurds in Iraq or Syria prompt increased fighting
inside Turkey, leading toward a full-blown conflict
that also involves Turkey’s neighbors.
The ISA March 2015 Turkey Country Report
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Potential Conflict: Greece
Main Disputes:
• The division of Cyprus into Greek and Turkish enclaves
continues to spark tension between the two countries.
• Turkey disputes Greece’s claims to control over most of the
territory of the Aegean Sea.
• Turkey has supported Muslims in Bosnia and Albania
whereas Greece retains close ties with Serbia.
• Many politicians in Greece are staunchly against Turkish
membership in the European Union.
Best- and Worse-Case Scenarios:
• Best Case Scenario
– Turkey joins the European Union, helping to cement
relations between the two long-time rivals.
• Worst-Case Scenario
– Turkey is rejected by the EU (or rejects the EU itself)
and the situation in Cyprus deteriorates, leading to a
war between Greece and Turkey.
The ISA March 2015 Turkey Country Report
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Potential Flashpoint: The Euphrates and Tigris Rivers
Flashpoint Summary
Both Iraq and Syria are dependent
upon the Euphrates and Tigris
rivers for their water supplies.
Moreover, both countries are
facing major water shortages as
demand for water soars.
However, Turkey controls the
headwaters of both rivers and has
built a series of dams and
reservoirs along both rivers in
order to ensure that southeastern
Turkey receives much of these
rivers’ waters.
As the population in all three
countries continues to rise,
demand for water will do the
same. Moreover, groundwater
resources in the region are being
depleted. As such, a severe
drought could exacerbate tensions
in the region.
Main Actors
Turkey
• Turkey controls the headwaters
of both the Euphrates and Tigris
rivers.
Iraq
• Nearly all of Iraq’s water
supplies come from the Euphrates
and Tigris rivers.
Syria
• The Euphrates River is the only
source of water for many areas of
Syria.
Iran
• Iran is the only other potential
source of freshwater for Iraq if
Turkey uses a larger share of the
Tigris and Euphrates rivers.
Global Implications
Maps
Middle East Regional Stability
• Any conflict involving Turkey,
Iraq or Syria has implications for
the wider region, potentially
involving such powers as Iran and
Israel.
The Kurds
• Turkey’s efforts to improve
relations with its Kurdish minority
were a key reason why Turkey
has moved to take control of the
waters of both rivers.
Iran
• Iran is the only other country in
the region that has significant
water supplies that can be
exported to water-poor countries
in the region.
Potential Outcomes
• Water shortages in southeastern Turkey worsen, leading to Turkey taking larger amounts of water from the Tigris and the Euphrates, resulting in severe
water shortages in Iraq and Syria. This would force Iraq to seek to import water from neighboring Iran, giving Iran even more influence in that country.
• Turkey’s improving ties with the Iraqi and Syrian governments allow all three sides to reach an amicable solution to the water allocation issue. However,
this will not reduce the growing demand for water in the three countries and this will result in likely water shortages in all three countries in the coming
years. In the meantime, water will become a major issue as Turkey and Iran compete for influence in Syria and Iraq.
The ISA March 2015 Turkey Country Report
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Military Spending
Strengths and Weaknesses
Turkey has one of the strongest militaries in the region.
• However, Turkey faces potential military threats along all of
its borders.
• This multitude of threats has resulted in it proving very
difficult for the Turkish military to concentrate its forces on any
single region.
• Moreover, a large number of Turkish forces are tied down in
south-eastern Turkey in order to deal with Kurdish separatists
and the unstable border with Iraq.
Turkey lacks major force projection capabilities.
• It is seeking to increase its spending on air and sea forces to
expand its range of military influence in order to match its
growing ambitions in the region.
Source: SIPRI
Outlook
The military retains a great deal of influence in Turkey and
it is responsible for much of Turkey’s foreign policy
initiatives, including defense ties with Israel.
• Nevertheless, the military’s position has been weakened by
the AKP-led government and this has led to a shift in defense
priorities in recent years.
The ISA March 2015 Turkey Country Report
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Turkey: Political Risk Outlook
Current Political Risk Ratings:
Political Risk Outlook:
• Turkey continues to face high levels of political risk due to
instability along much of its border and the high risk of
terrorism.
• Turkey’s position at one of the most important geographic
locations on earth also has raised political tensions.
• The wars in neighboring Syria and Iraq have destabilized
a large section of southeastern Turkey and threatened to
drag Turkey into these conflicts.
Low Risk………………High Risk
• Despite the country’s recent economic and political
success, political risk levels remain high and will remain
high for the foreseeable future.
ISA Risk Ratings
– 0.0 to 1.9 = Low Risk
– 2.0 to 3.9 = Low to Moderate Risk
– 4.0 to 5.9 = Moderate Risk
– 6.0 to 7.9 = Moderate to High Risk
– 8.0 to 10 = High Risk
The ISA March 2015 Turkey Country Report
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Turkey Economic Outlook
The ISA March 2015 Turkey Country Report
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Turkey: Economic Overview
Economic Summary:
Economic Performance Comparisons:
Over the past decade, Turkey has enjoyed some of its
highest economic growth rates in modern times,
despite a slowdown in recent years.
• However, Turkey has suffered from four major recessions
since 1994, highlighting the volatility of the country’s
economy and the risks facing the economy.
Size of the circle
indicates the size
of the economy
The growth of the manufacturing export sector has
provided Turkey with a more solid economic base.
• However, Turkey’s growing service sector will continue to
be exposed to external shocks.
• Turkey’s tourism sector is particularly vulnerable to
political unrest and Europe’s economic performance.
Turkey’s turn towards an export-based economy will
benefit the country in the long-run, though the
economy will remain somewhat unstable over the next
three to five years due to the weakness of key
European export markets.
• However, a fast-growing domestic market will help to
shield Turkey from some of these external risks.
The ISA March 2015 Turkey Country Report
Source: ISA
Economic Forecasts
Per Capita GDP at PPP
26
Turkey: Wealth Comparisons
Per Capita GDP at PPP (US$)
Key Wealth-Related Issues and Trends
Turkish wealth levels have reached those
of much of Central and East Europe, but
remain just half of that of West Europe.
Moreover, Turkey has major wealth
discrepancies, with some areas suffering
from extreme poverty.
Source: World Bank
Meanwhile, some larger urban centers
have seen a significant increase in wealth
levels.
As Turkey’s population growth slows and economic opportunities grow, Turkey will
realize a significant increase in per capita GDP levels. Nevertheless, it will take
decades of strong economic growth for Turkey to close the gap with the wealthier
countries of Central Europe or the Middle East.
The ISA March 2015 Turkey Country Report
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Social Classes Breakdown
Chart: % of Population by Social Class
Chart: % of Households by Earnings
Household Breakdown by Earnings (US$)
Social Class A:
High Income
Professionals
Social Class B:
Upper-Mid Class
Professionals
Social Class C:
Lower-Mid Class
Professionals
Above $50,000
1.4%
Above $25,000
8.5%
42.0%
Above $10,000
76.3%
Above $5,000
Social Class D:
Poor
0%
20%
40%
60%
80%
100%
Source: Survey data
Nearly all people in Turkey are in the lower half of the social scale, with a small minority
controlling a great deal of the country’s wealth. Nevertheless, significant progress has
been made in reducing poverty, particularly in the western part of the country. In the
central and eastern parts of Turkey, poverty remains widespread.
The ISA March 2015 Turkey Country Report
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Turkey: GDP Growth Outlook
Chart: GDP Growth Rates
Current Outlook:
• After soaring in 2010 and 2011, economic
growth in Turkey slowed significantly in recent
years as domestic and export demand weakened.
• Growth failed to meet expectations in 2014,
falling well below government forecasts.
Source: ISA
Economic Forecasts,
national statistics
Future Outlook:
• Turkey’s economy will remain sluggish over the
near-term as export demand and inflationary
pressures combine to slow growth.
• Moreover, the risk of a prolonged stagnation in
key European export markets could dampen
growth prospects in the years ahead.
The ISA March 2015 Turkey Country Report
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Keys to Economic Growth in Turkey
Key Factors
Foreign Investment in Export-Oriented
Operations
Exchange Rate Fluctuations
Political Stability
The government is taking
steps towards reducing
the impact of internal and
external economic shocks
in a bid to increase
economic stability.
Consumer Confidence Levels on the
Domestic Market
Foreign investment and the promotion of exports are keys to Turkey’s future economic
performance. Moreover, with population growth being brought under control, the
chances for increasing purchasing power levels are improving.
The ISA March 2015 Turkey Country Report
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Key Economic Issue in Turkey
Turkey’s Economic Volatility
Source: ISA
Economic Forecasts,
national statistics
Over the past two decades, Turkey has had one of the
world’s most volatile economies.
• In the past two decades alone, Turkey has suffered
through four severe recessions.
• Interesting, Turkey did manage to avoid falling into a
recession following the debt crisis in Europe earlier this
decade.
There are a number of reasons why Turkey’s economy
is so volatile.
• Political instability, both domestic and regional, has had
an impact on consumer confidence and foreign
investment.
• Domestic demand has fluctuated wildly over the past two
decades.
• Moreover, few Turkish companies were successful
outside of Turkey as these companies’ revenues were
highly dependant upon sales in Turkey.
Economic volatility will remain a serious problem for the Turkish economy over the
next few years. However, the expansion of export-based industries will help to reduce
volatility in the long-run, provided that major external shocks such as regional conflicts
or new protectionist agendas do not occur.
The ISA March 2015 Turkey Country Report
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Turkey: Key Economic Sector
The Automotive Industry
Summary:
Turkey’s automotive industry has benefiting a surge in
foreign investment over the past two decades.
• For major automotive manufacturers, Turkey is seen as a
low-cost manufacturing base for price-sensitive automotive
products.
Leading foreign investors include many of the world’s
leading automotive suppliers.
• Carmakers such as Ford and Fiat also have a large
presence in Turkey where they produce lower-cost vehicles
for sale in Europe and the Middle East.
• Many of the world’s leading tire manufacturers also have
major manufacturing facilities in Turkey.
Outlook:
Turkey’s new car market has proven extremely
volatile as it rises and falls with the Turkish economy.
• Now that the industry is focusing on exports, the future
looks much brighter for Turkey’s automotive industry.
• Moreover, the outlook for Turkey’s domestic automotive
market has improved markedly in recent years.
The ISA March 2015 Turkey Country Report
Source: OICA
32
Turkey: Industrial Production Growth Outlook
Chart: Industrial Production Growth Rates
Current Outlook:
• Industrial production growth soared in 2010 and
2011 thanks to a surge in both domestic and
export demand.
• However, weaker export demand has hurt the
country’s industrial sector in recent years.
Source: ISA
Economic Forecasts,
national statistics
Future Outlook:
• Many of Turkey’s key industrial sectors will
struggle as European export markets remain
weak, keeping industrial production growth rates
from reaching their potential over the forecast
period.
The ISA March 2015 Turkey Country Report
33
Turkey: Inflation Outlook
Chart: Inflation Rates
Current Outlook:
• After decades of inflationary pressures, Turkey
has enjoyed 15 years of relatively stable inflation
rates.
• Nevertheless, inflation rates remain too high for
comfort at around 8%.
Source: ISA
Economic Forecasts,
national statistics
Future Outlook:
• The key for future inflationary trends will be the
volatility of the Turkish lira that will keep inflation
from falling further at least until later in the
forecast period.
The ISA March 2015 Turkey Country Report
34
Turkey: Foreign Trade Overview
Chart: Leading Trade Partners
Chart: Current Account Balance
Source: ISA
Economic Forecasts,
national statistics
Turkey is rapidly becoming an important center for manufactured exports to Europe
and the Middle East. While exports have suffered in recent years due to the weakness
of key European export markets, the longer-term outlook calls for healthy export
growth rates in the years ahead.
The ISA March 2015 Turkey Country Report
35
Turkey: Foreign Investment
Chart: FDI Inflows
Foreign Investment Climate:
Source: UNCTAD
Turkey has done a much better job of attracting
foreign investment over the past decade than in the
past.
• Previously, Turkey attracted mostly low-cost
manufacturing investments from companies seeking to
export to Europe.
• However, the growth of Turkey’s domestic market has
resulted in more foreign investment being aimed at Turkish
consumers.
Price-sensitive manufactured exports for Europe and
the Middle East will remain a key component of foreign
investment in Turkey.
• Textiles and the automotive industry will be leading
recipients of this investment.
• Western Turkey has already developed into the region’s
most important manufactured-export center.
Outlook For Future Foreign Investment:
The Turkish government must do more to promote
foreign investment, including further investment
incentives for job-creating manufacturing operations.
• As the countries of Eastern Europe become more
expensive, Turkey will be in a position to gain significant
amounts of manufacturing FDI, if the political climate is
favorable.
The ISA March 2015 Turkey Country Report
36
Regional Foreign Investment
Source: UNCTAD
Foreign investment levels in the Middle East and North Africa have risen sharply in
recent years thanks to major investments in the region’s oil and gas industry.
Moreover, as many countries in the region move to diversify their economies, they are
attracting foreign investment in a number of non-energy-related sectors.
The ISA March 2015 Turkey Country Report
Turkey: Exchange Rates
Chart: Exchange Rate with the US Dollar
Chart: Exchange Rate with the Euro
Source: ISA
Economic Forecasts,
OANDA
Source: ISA
Economic Forecasts,
OANDA
The introduction of the new lira in 2005 was designed to reduce confusion among
foreign investors and tourists, while hopefully stabilizing what had been one of the
region’s most unstable currencies. However, the currency has fluctuated wildly in
recent years, but is forecast to stabilize in the coming years.
The ISA March 2015 Turkey Country Report
38
Cost of Living Comparisons
Regional Cost of Living Comparisons
Global Cost of Living Comparisons
Cost of Living (Dubai = 100)
Cost of Living (New York = 100)
Tokyo
Lagos
London
Nairobi
New York
Istanbul
Sydney
Istanbul
Dubai
Moscow
Beirut
Dubai
Cairo
Beijing
Mexico City
Johannesburg
Delhi
0
20
40
60
80
100
120
0
50
100
Source: US State
Department
Cost of living levels are very high in Istanbul, whereas in the rest of the country, living
costs are far lower. In fact, Istanbul is one of the most expensive cities in the entire
Eastern Mediterranean region.
The ISA March 2015 Turkey Country Report
39
150
Fiscal Policy Overview
Chart: Fiscal Balance
Current Outlook:
• After running a massive fiscal deficit nearly a
decade ago, the Turkish government has done a
better job of maintaining its financial health in
recent years.
Source: ISA
Economic Forecasts,
national statistics
Future Outlook:
• The current government is determined to
maintain financial health in the wake of the
economic crisis in Europe.
• Nevertheless, the threat of economic volatility
means that future increases in the fiscal deficit
cannot be ruled out.
The ISA March 2015 Turkey Country Report
40
Turkey: Labor Force
Chart: Unemployment Rate
Labor Force Overview:
Unemployment rates in Turkey have trended upwards
in recent years.
• Moreover, long-term unemployment remains a serious
problem in Turkey.
Source: ISA
Economic Forecasts,
national statistics
In the long-run, the low-cost of the Turkish labor force
will attract additional foreign investment.
• However, Turkey will add millions of new people to its
working-age population in the coming years, even as the
country’s birth rate falls.
• As a result, Turkey’s unemployment rate will remain
relatively high.
Outlook For the Labor Force:
Unemployment will remain a problem throughout the
forecast period, though the expansion of the
manufacturing and services sectors will ease
unemployment growth over the long-term.
The ISA March 2015 Turkey Country Report
41
Largest Companies in Turkey
Leading Companies:
The Koc Group, Turkey’s largest company by a wide
margin, is a multinational conglomerate with numerous
activities.
• The highly diversified company is involved in the automotive,
IT, food, retail, energy, consumer goods and electronics
industries.
The Sabanci Group is a conglomerate made up of nearly
70 diverse companies and now ranks as Turkey’s second
largest-company.
Source: Forbes
Meanwhile, banks now make up four of Turkey’s seven
largest companies.
Outlook for Domestic Companies:
Turkey’s largest companies are generally active on the
domestic market, with only a handful of Turkish
companies having significant foreign activities.
• However, Turkish companies are becoming more active in
the region and this could prove to be a significant growth
opportunity for Turkish enterprises in the near future.
The ISA March 2015 Turkey Country Report
42
Turkey Regional Economies
Most of Turkey is comprised of agricultural regions, but four main centers of commerce
and industry dominate the country’s economy. By far the most important of these is
the Marmara region, that includes Istanbul, Izmit and Bursa. The other major centers
are Ismir, Ankara and the south-central region centered around Adana.
The Marmara region is the
heart of Turkish
commerce and industry
and is the center of
foreign investment.
Ankara is home to light
manufacturing and
agricultural markets.
Izmir is a major
shipping and industrial
center and is Turkey’s
second-largest port.
The ISA March 2015 Turkey Country Report
The cities of southcentral Turkey lie at
the heart of the
country’s leading
agricultural region.
43
Forecast Assumptions and Risk
Assumptions:
Risks:
Uneven Global Economic Growth
Economic growth will be strong in the United States
and most “New World” economies, but Europe and
Japan will continue to struggle. Growth in emerging
markets will be steady, if unspectacular.
Deflationary Pressures in Developed Economies
A number of developed economies in Europe and
Asia will face high levels of deflationary pressures
that will persist over the longer-term in many of these
regions’ weaker economies.
Natural Resource Prices Trend Downwards
The fall in oil and other natural resource prices over
the past year will not be reversed as demand levels
remain weaker in China and many other emerging
markets, as well as in Europe and Japan.
A Meltdown in the Middle East
The potential for the level of political unrest in the
Middle East and North Africa to become much worse
is very high as conflicts of varying intensities wage
across the region.
A Strong US Dollar
The US dollar will retain most of its recent gains
against other currencies around the world as the US
economy records strong growth and investors
continue to seek safe havens for their investments.
EU Membership in Rejected
If either the EU rejects Turkish membership or
Turkey rejects the EU’s conditions, then a major
political fallout can be expected, with nationalists
seeing a major increase in support.
Turkish Membership in the EU Not Before 2030
Given the fact that the latest seven-year EU budget
has been agreed upon, there is no way that Turkey
could join the EU prior to 2016, and popular
resistance will keep Turkey out even longer.
Another Economic Crash
Should economic volatility return on the extreme
downside again in the near-future, the level of social
and political unrest at home could rise to more
dangerous levels.
The ISA March 2015 Turkey Country Report
44
Turkey: Economic Risk Outlook
Current Economic Risk Ratings:
Economic Risk Outlook:
• Economist risk levels have trended downwards in recent
years thanks to the higher level of stability for the Turkish
economy.
• The weakness of key export markets in Europe has
emerged as one of the key risks facing Turkey’s economy.
Low Risk………………High Risk
ISA Risk Ratings
– 0.0 to 1.9 = Low Risk
– 2.0 to 3.9 = Low to Moderate Risk
– 4.0 to 5.9 = Moderate Risk
– 6.0 to 7.9 = Moderate to High Risk
– 8.0 to 10 = High Risk
The ISA March 2015 Turkey Country Report
45
Turkey Demographic and Environmental Outlook
The ISA March 2015 Turkey Country Report
46
Turkey: Population Overview
Chart: Total Population
Chart: Working-Age Population
Total Population
Working-Age Population
90,000,000
60,000,000
80,000,000
50,000,000
70,000,000
40,000,000
60,000,000
50,000,000
30,000,000
40,000,000
20,000,000
30,000,000
Source: US Census
Bureau
20,000,000
Source: US Census
Bureau
10,000,000
10,000,000
Working-Age
Non-Working-Age
0
0
1950
1970
1990
2010
2030
2050
2000
2010
2020
2030
2040
2050
Turkey’s population growth is slowing, albeit at a very gradual pace. The result will be
a major increase in working-age Turks over the next 15 years. If the economy does not
grow fast enough to provide opportunities for these additional people, emigration
pressures will rise, causing political rifts with Europe.
The ISA March 2015 Turkey Country Report
47
Population Growth By Ten-Year Age Increments
Total Population By Age-Group
90,000,000
80,000,000
Source: US Census
Bureau
70,000,000
60,000,000
50,000,000
40,000,000
30,000,000
20,000,000
10,000,000
0
2000
2 0 10
2020
2030
2040
2050
5 9 7 ,0 0 0
9 6 5 ,0 0 0
1,4 8 1,0 0 0
2 ,0 3 6 ,0 0 0
3 ,2 6 3 ,0 0 0
5 ,0 3 3 ,0 0 0
70-79
1,8 2 0 ,0 0 0
2 ,5 6 3 ,0 0 0
3 ,14 1,0 0 0
4 ,9 0 1,0 0 0
7 ,112 ,0 0 0
8 ,7 0 1,0 0 0
60-69
3 ,3 8 6 ,0 0 0
4 ,0 3 7 ,0 0 0
6 ,14 6 ,0 0 0
8 ,7 6 5 ,0 0 0
10 ,5 5 4 ,0 0 0
11,5 4 2 ,0 0 0
50-59
4 ,5 16 ,0 0 0
6 ,7 9 6 ,0 0 0
9 ,6 0 7 ,0 0 0
11,4 7 3 ,0 0 0
12 ,4 7 2 ,0 0 0
11,6 8 5 ,0 0 0
40-49
7 ,110 ,0 0 0
10 ,0 0 6 ,0 0 0
11,8 9 9 ,0 0 0
12 ,8 9 4 ,0 0 0
12 ,0 4 8 ,0 0 0
10 ,9 2 8 ,0 0 0
30-39
10 ,2 10 ,0 0 0
12 ,10 9 ,0 0 0
13 ,0 9 3 ,0 0 0
12 ,2 12 ,0 0 0
11,0 5 9 ,0 0 0
10 ,6 6 5 ,0 0 0
20-29
12 ,2 3 6 ,0 0 0
13 ,2 10 ,0 0 0
12 ,3 0 5 ,0 0 0
11,13 1,0 0 0
10 ,7 2 5 ,0 0 0
9 ,9 4 2 ,0 0 0
10 - 19
13 ,3 0 9 ,0 0 0
12 ,3 8 3 ,0 0 0
11,19 0 ,0 0 0
10 ,7 7 5 ,0 0 0
9 ,9 8 2 ,0 0 0
9 ,2 16 ,0 0 0
0-9
12 ,4 8 3 ,0 0 0
11,2 5 3 ,0 0 0
10 ,8 16 ,0 0 0
10 ,0 0 9 ,0 0 0
9 ,2 3 5 ,0 0 0
8 ,7 6 1,0 0 0
80+
Turkey’s population growth will be large by European standards, but relatively small by
the standards of the Middle East. As the birth rate declines, Turkey’s population will
age. By 2030, over half of the population will be more than 40 years old.
The ISA March 2015 Turkey Country Report
48
Middle East and North Africa Population Trends by Country
Total Population
700,000,000
Contribution to Regional Population
Growth (2000-2050)
Source: US Census
Bureau
Saudi Arabia
600,000,000
Egypt
500,000,000
Yemen
400,000,000
Iraq
300,000,000
Algeria
Morocco
200,000,000
Turkey
100,000,000
Syria
0
1950
1970
1990
2010
2030
2050
Israel
Source: US Census
Bureau
Others
Egypt
Morocco
Turkey
Iraq
Algeria
Saudi Arabia
Yemen
Israel
Others
0%
5%
10%
15%
20%
The Middle East and North Africa is experiencing a major population increase as high
birth rates lead to massive population growth in many countries. As a result, the
region’s population will nearly double by the year 2050, reaching 640 million people.
The ISA March 2015 Turkey Country Report
49
25%
Turkey: Leading Urban Centers
Chart: Largest Urban Centers
Summary:
• Istanbul is Turkey’s largest city and is growing
rapidly.
• Numerous other cities in Turkey have grown into
substantial urban centers, including the capital city,
Ankara, and the industrial center, Izmit.
• The largest population concentrations are in the
northwest and the south-central areas of the
country.
Source: World
Gazetteer
The ISA March 2015 Turkey Country Report
50
Key Demographic Issue in Turkey
Turkish Workers for Europe?
Change in the Working-Age Populations
in Europe (2000-2025)
A need for workers
in Germany and
Southern Europe.
Germany
When Europe, especially Germany, needed workers in
the past they found them in Turkey.
• Today, many northern European countries are once
again finding themselves in need of foreign workers.
• Turkey, with its growing population and ties with Europe
is a potential source.
UK
Source: US Census
Bureau
France
Italy
Spain
With a rapidly growing population and an unstable
economy, Turkey needs to export workers.
• Guest workers in Europe could help to improve ties
between Turkey and Europe.
• Remittances still play a significant role in the Turkish
economy.
• Moreover, exporting workers helps maintain civil order in
difficult economic times.
Turkey
-10,000,000
0
10,000,000
20,000,000
Turkey’s economy will grow as a result of foreign investment, but not enough to create
jobs for the 15 million new potential workers in Turkey. As in North Africa, the
economic desperation of the jobless leads to flirtations with political and religious
extremism. Turkey must avoid this situation for future economic growth and stability.
The ISA March 2015 Turkey Country Report
51
Turkey: Topography and Climate
Topography and Climate:
Key Environmental Issues:
• Most of Turkey consists of highlands, including the
Anatolian Plateau.
Turkey often suffers violent earthquakes as it is located
along several seismic zones.
• The 1999 earthquake which hit Izmit and the surrounding
region killed over 14,000 people.
• All areas of the country are subject to periodic earthquakes.
• High mountains are found in eastern Turkey and along both
the Mediterranean and Black Sea coasts.
• North-western Turkey, including Thrace, consists of rolling
hills and narrow coastal plains.
• Coastal regions of Turkey have a Mediterranean climate,
with the southern coast having very hot summers and mild
winters.
• Inland, the climate is more continental, with hot, dry
summers and cold winters.
The ISA March 2015 Turkey Country Report
The expansion of Turkey’s tourism industry has been
focused on the country’s coastal regions.
• As a result, many coastal regions have been overdeveloped
with tourist resorts.
Nearly all of Turkey’s major urban areas suffer from high
degrees of air pollution.
• Traffic has increased and many of the vehicles used in
Turkey do not meet developed countries’ emissions
standards.
• Industrial regions also are heavily polluted.
52
Key Geographic Issue in Turkey
Water Rights
With growing populations, the control of the Middle
East’s fresh water supplies will be a crucial issue in the
near future.
• Turkey controls the headwaters of the Tigris and Euphrates
rivers and these rivers are the main sources of fresh water
for Syria and Iraq.
• Moreover, demand for water in central and south-eastern
Turkey has risen sharply in recent years.
Turkey is in the midst of building a series of dams and
reservoirs on the Euphrates River in the south-eastern
region of the country.
• This is designed to expand available agricultural land
through irrigation.
• This project includes the Ataturk Dam, one of the largest
dams in the world.
Turkey’s water control program will lead to serious tensions in the future between
Turkey, Syria and Iraq. In fact, a war nearly broke out in 1975 between Turkey and Syria
over this issue and that was before Turkey’s later projects. Watch for tensions to rise
during particularly dry years, when the water reaching Syria and Iraq is reduced.
The ISA March 2015 Turkey Country Report
53
Turkey: Demographic and Environmental Risk Outlook
Current Risk Ratings:
Demographic Risk Outlook:
• Turkey has one of Europe’s fastest-growing work forces
and this will actually improve demographic risk levels if the
economy continues to expand.
Environmental Risk Outlook:
Low Risk………………High Risk
ISA Risk Ratings
– 0.0 to 1.9 = Low Risk
– 2.0 to 3.9 = Low to Moderate Risk
– 4.0 to 5.9 = Moderate Risk
– 6.0 to 7.9 = Moderate to High Risk
– 8.0 to 10 = High Risk
The ISA March 2015 Turkey Country Report
• Natural disasters are a major risk for Turkey as all of its
major cities are located in areas with frequent earthquakes.
54
ISA March 2015 Country
Report
Turkey
The ISA March 2015 Turkey Country Report
55