One of the world’s fastest-growing economies
Turkey is located in West Asia and partly in Southeast Europe, with a population of 84.8 million. Turkey is a regional power with significant geopolitical importance. Its strategic location at the intersection of trade routes from Europe, Africa, and Asia boosts its status in the global economy. The Republic of Turkey, which succeeded the Ottoman Empire, was established in 1923 after abolishing a 623-year sultanate. Following the 2017 referendum, the parliamentary republic was replaced by a presidential system.
After liberalization in the 1980s, Turkey has become one of the fastest-growing economies. Supportive to economic growth are low production costs, developed infrastructure, and an increasingly skilled labor force. A period of robust growth in the early 21st century was followed by recession and stagnation. In 2021, the value of GDP was $819 billion ($9,661 per capita). In the GDP structure, industry accounts for 31.1%, services for 52.8%, and agriculture for 5.5%. As for the business environment, 99.8% of companies (3.3 million) are small or medium-sized enterprises (SMEs).
Cultural factors and the ongoing adoption of Western lifestyles by society play an important role in shaping the Turkish economy. As a result, the economy is opening up to new products. In recent years, the share of private entities in investment has increased, primarily in housing and manufacturing. The state has the highest investment share in transportation and communications. At the same time, state investment share in the energy sector is declining.
Population of Turkey
Turkey’s population is 84.8 million. Every Turkish citizen is termed a Turk, regardless of ethnic background. Ethnic Turks make up the population majority, while other groups include Kurds, Zaza, Circassians, Arabs, and Greeks. Turkey hosts one of the world’s largest refugee populations. The Syrian civil war has been the reason for the massive influx of refugees. There are currently 3.4 million Syrians in Turkey.
Turkey is a secular state. 99% of Turks are followers of Islam, and other religions include Christianity, Judaism, and Yezidism. The rights of non-Muslim minorities are guaranteed by the Treaty of Lausanne of July 1923. Urban areas are now home to 77.5% of Turks. Nearly a third of the population resides in the three metropolitan areas: Istanbul, Ankara, and Izmir. Istanbul has the largest population (15.8 million), while the capital, Ankara, is home to 5.4 million people.
Compared to European countries, Turkey’s population is relatively young. About 40% of the population are people under the age of 24. More than 30 million citizens are of working age. Authorities see the young population as an asset to increase Turkey’s competitiveness in the global market. In addition, more and more universities have been established in the country recently. As a result, Turkish society is increasingly educated, and the workforce is more skilled.
Economy of Turkey
Turkey is a member state of the Organization for Economic Cooperation and Development (OECD) and the G20. Turkey’s GDP has quadrupled since the beginning of the 21st century. In 2018, however, the economy entered a crisis phase. The result of the 2016 military coup attempt was, among other things, a rise in inflation and a depreciation of the Turkish lira. The currency was weakened also by the US increasing tariffs on Turkish steel and aluminum. However, the low value of the lira has helped boost exports, and the 2019-2022 development agenda put the economy back on a growth path. However, inflation (85.5%) and the current account deficit ($48.7 billion) are challenges.
Most important in Turkey’s economic structure are services, generating more than 50% of Turkey’s GDP. The main sectors are trade, tourism, transportation, telecommunications, and banking. The growing tourism industry generated a record revenue of $46.3 billion in 2022. Turkey’s environment is also conducive to agricultural growth. Farmers account for 18% of the workforce. Turks primarily produce dairy products, grow grains, vegetables, fruits, and industrial crops, and raise livestock. Agri-food products together account for 13% of total exports.
The backbone of the Turkish industry is automotive, machinery manufacturing, textiles, and energy. The construction market was valued at $103.9 billion in 2022. Energy, transportation, and housing infrastructure projects are growth drivers. It is to be fostered by the Transportation and Logistics Master Plan – Transportation 2053 Vision, which aims to make Turkey a transportation and logistics hub. The textile industry accounts for 7% of GDP. Turkey is now the seventh-largest supplier of textiles in the world.
International trade
Turkey is the world’s 22nd-largest economy by GDP, the 29th-largest exporter, and the 22nd-largest importer. Turkey’s exports are worth $225.2 billion and imports $271.4 billion. Turkey’s main trading partners are Germany, the United States, the United Kingdom, Italy, Iraq, Spain, France, the Netherlands, Israel, Russia, and the United Arab Emirates.
The group of most imported goods includes oil and mineral fuels (18.7%), industrial machinery (11.4%), iron and steel (10.2%), electrical equipment (7.36%), plastics (6.48%), motor vehicles and parts (5.75%), organic chemicals (3.44%), precious stones and metals (2.61%), pharmaceuticals (2.53%), and aluminum (2.43%). Other imported goods include copper, precision instruments, cereals, cotton, rubber, chemicals, and iron and steel articles.
Among the most frequently exported goods are motor vehicles and parts (11.1%), industrial machinery (9.22%), iron and steel (7.58%), electrical machinery (5.33%), precious stones and metals (4.87%), clothing (4.79%), plastics (4.45%), iron and steel articles (3.91%), oil and mineral fuels (3.78%), and fruits and nuts (2.38%). Other items include furniture, rubber, carpets, textiles, preserved fruits and vegetables, inorganic chemicals, cereals, and flour.
Trade agreements
Turkey has entered into many trade agreements. These have been concluded with both countries and associations of countries. Turkey and the European Union signed a customs union agreement, which went into effect on December 31, 1995. Turkey has also concluded free trade agreements with 35 countries. Eleven of them were abrogated when those countries joined the EU.
Turkey has concluded free trade agreements with the following countries:
Albania
Bosnia and Herzegovina
Chile
Egypt
Faroe Islands
Georgia
Kosovo
Macedonia
Malaysia
Mauritius
Moldova
Montenegro
Morocco
Palestine
Serbia
Singapore
South Korea
Tunisia
United Kingdom
Venezuela
Free trade agreements signed with Lebanon, Qatar, Sudan, and Ukraine are in the process of ratification. Turkey has also entered into preferential trade agreements with Iran and Azerbaijan, and an agreement with Uzbekistan is in the process of ratification. A double taxation avoidance agreement with the United States entered into force in 1998.
Agreements with associations of countries:
European Union (EU)
European Free Trade Association (EFTA)
Turkey-European Union relations
Turkey and the European Union share a close relationship. The basis for trade relations are the 1963 Agreement establishing an Association between the European Economic Community and Turkey and the customs union agreement, which entered into force on December 31, 1995. Turkey’s accession negotiations with the European Union began in 2005 but were suspended in 2019.
Turkey is the EU’s sixth largest partner in goods trade (3.3% share), and the EU is Turkey’s top partner (41% of Turkey’s exports go to the Union). The value of goods trade in 2022 was 198.1 billion euros. The EU imports mainly textiles and transportation equipment. Exports include machinery, transportation equipment, base metals, and chemicals.
Trade in services was worth 24.2 billion euros. The EU’s imports from Turkey consisted primarily of transportation and tourism services. Most frequently exported services from the EU to Turkey included transportation and ICT services.
In recent years, tensions between Turkey and the European Union have emerged in the political sphere. Despite this, the two sides continue to cooperate economically and work together to resolve crises, such as the migration crisis, even if disagreements and frictions arise in the collaboration.
Opportunities and challenges
The growing interest in Western culture and lifestyles, the population’s day-to-day needs, and economic development agendas present opportunities for foreign entrepreneurs. Demographic growth implies, among other things, increased demand for electricity and the need to modernize Turkey’s energy infrastructure, which provides opportunities for companies exporting high-tech machinery and technologies. In turn, energy supply diversification presents opportunities for developing renewable energy projects, especially solar, wind, and geothermal.
The growth of the construction industry indicates growing demand for sophisticated machinery and devices. Demand for such technologies will be boosted also by the plan to expand transportation infrastructure, such as roads, railroads, and ports. As a result, demand for transportation equipment will also increase. The public and private sectors also increase investment in industrial machinery, IT, and telecommunications technologies. Demographic trends imply the need to increase government spending on education and healthcare in the coming years.
However, one should recognize that despite Turkey’s rapid economic growth, potential exporters face many challenges. They are related to the legal environment and cultural differences. The domestic political developments and the resulting tensions are also challenging. Nevertheless, Turkey, growing partly due to foreign investment, is focused on continued cooperation with foreign partners and trade expansion. It is supported by 18 free zones, which aim to promote and increase the volume of foreign direct investment.