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An Examination of the Turkish Economy An Examination of the Turkish Economy Document Transcript

  •   An  Examination  of  the  Turkish  Economy             Team  Research  Project:   Callie  Alepede   Ali  Miller   Adam  Sparling   Eduardo  Villarreal               December  14,  2012   GR  522  Economic  Environment  of  the  Firm  
  • 2     Contents   I.   Introduction  ..........................................................................................................................................  3   II.   Turkey’s  Economic  Situation  ................................................................................................................  4   A.   Gross  Domestic  Product  ...................................................................................................................  4   B.   Unemployment  ................................................................................................................................  5   C.   Inflation  ............................................................................................................................................  5   D.   Interest  Rates  ...................................................................................................................................  6   E.   Exchange  Rates  .................................................................................................................................  7   F.   Balance  of  Trade  ...............................................................................................................................  7   III.   Turkey’s  Financial  Situation  ................................................................................................................  9   IV.   Monetary,  Fiscal  and  Economic  Policies  ...........................................................................................  10   V.   Economic  Forecast  .............................................................................................................................  12   VI.   Trade  Barriers  ...................................................................................................................................  13   VII.   International  Transaction  Accounts  ................................................................................................  15   VIII.   Conclusion  ......................................................................................................................................  15   A.   Strengths  ........................................................................................................................................  15   B.   Weaknesses  ....................................................................................................................................  16   C.   Opportunities  .................................................................................................................................  16   D.   Threats  ...........................................................................................................................................  17   IX.   Exhibits  ..............................................................................................................................................  18   A.   Exhibit  A  .........................................................................................................................................  18   B.   Exhibit  B  .........................................................................................................................................  22   C.   Exhibit  C  ..........................................................................................................................................  23   X.   Works  Cited  ........................................................................................................................................  24    
  • 3     I. Introduction   The  Republic  of  Turkey  was  founded  in  1923  by  Mustafa  Kemal  Ataturk.  Turkey  has  an  estimate   of  71.9  million  people  (2008  census).  Its  capital  is  in  Ankara  and  its  official  language  and  religion  are   Turkish  and  Muslim  respectively.  Turkey  has  many  natural  resources  including  but  not  limited  to  coal,   mercury,   copper,   and   sulphur.   Along   with   these   resources   of   course   come   hazards;   one   of   which   is   Turkey  being  prone  to  severe  and  damaging  earthquakes.   Turkey’s  economy  is  the  sixth  largest  in  Europe  and  the  sixteenth  in  the  world.  This  may  not  be  a   surprise  due  to  the  country’s  incredibly  centralized  location.  Turkey’s  location  includes  borders  on  the   Black  and  Aegean  Seas  as  well  as  being  between  countries  such  as  Bulgaria,  Greece,  and  Syria.  In  this   economy,  a  few  of  the  major  industries  in  Turkey  are  automotive,  textiles  and  clothing,  along  with  iron   and  steel  (Foreign and Commonwealth Office).  All  of  these  facts  will  help  to  explain  and  discuss  some   complex  topics  on  Turkey’s  past  economy,  where  Turkey  is  presently,  as  well  as  where  it  looks  to  be   headed  in  the  near  future.   This   paper   will   discuss   the   macroeconomic   and   international   trade   situation   in   Turkey.   More   specific   topics   included   will   be   information   on   GDP   growth,   unemployment,   and   monetary   exchange   rates.   Also   included   will   be   evaluations   and   considerations   of   Turkey’s   deficit   and   debt   situation,   possible  forecast  of  the  domestic  economy,  trade  barriers,  and  an  overall  description  of  Turkey’s  current   economy.  The  paper  will  conclude  with  a  SWOT  Analysis.      
  • 4     II. Turkey’s  Economic  Situation   A. Gross  Domestic  Product     With   a   Gross   Domestic   Product  (PPP)  of  $1.288  trillion,   Turkey   ranks   as   one   of   the   20   highest   in   the   world (CIA).     Since  1990,  Turkey’s  GDP  (PPP)   has   grown   by   over   500%,   its   GDP   at   current   USD   by   300%   and   its   GDP   at   constant   2000   USD  by  100%.  Turkey  has  had  a  constant  growth  since  1990,  which  has  accelerated  since  1998.       Turkey’s   GDP   in   constant   2000   USD   averages  a  growth  of  6%  per  year,  a  good  rate   for  a  developing  country.  “Turkey  is  expected   to   be   the   highest   growing   OECD   member   country   between   2011   and   2017,   with   an   annual  average  growth  rate  of  6.7%.”  (HSBC)       Its   growth,   however,   has   not   been   constant  and  stable  through  the  years.  While  reaching  growth  of  over  8%  in  some  years,  Turkey’s  GDP   has  also  fallen  by  close  to  6%  in  others.  Turkey  seems  to  have  an  economic  cycle  of  four  to  six  years.   0   200   400   600   800   1,000   1,200   1,400   USD  billions   Turkey's  GDP:  current,  PPP  and  constant   GDP  (constant  2000  US$)   GDP  (current  US$)   GDP,  PPP  (current  internadonal  $)   Source:  World  Bank   From  Exhibit  A   -­‐8   -­‐6   -­‐4   -­‐2   0   2   4   6   8   10   1990   1991   1992   1993   1994   1995   1996   1997   1998   1999   2000   2001   2002   2003   2004   2005   2006   2007   2008   2009   GDP  and  GDP  per  capita  Growth  1990-­‐2011   GDP   growth   (annual   %)   GDP  per   capita   growth   (annual   %)   Source:  World  Bank     From  Exhibit  A    
  • 5       Part  of  its  growth,  and  probably  of  the  instability   of   it,   is   a   result   of   Turkey’s   focus   on   services.   Services   account   for   67%   of   Turkey’s   GDP,   while   its   industrial   activities  for  only  23%;  leaving  agriculture  at  a  low  10%.   B. Unemployment     Unfortunately  for  the  Turkish  labor  force,  Turkey’s  constant  GDP  growth  has  not  produced  as   many  jobs  as  the  economy  needed.  Unemployment  has   had  a  rising  trend  since  1990,  from  a  starting  point  of   8%  to  12%  in  2010.  Unemployment  reached  its  lowest   point  in  2000  at  7%  and  its  highest  point  in  2009  at  14%.   This  constant  rise  in  unemployment  should  be  a  major   concern  not  only  for  the  Turkish  labor  force,  but  mainly   for  the  Turkish  government.   C. Inflation   An   achievement   for   the   Turkish   economy   has   been   the   reduction   and   stability  obtained  in  inflation.  After  years   of   increasing   consumer   prices   and   inflation   rates   of   over   80%,   Turkey   has   managed  to  keep  its  inflation  around  10%   since  2004.     10%   23%   67%   GDP  by  sector   Agriculture   Industry   Services   Source:  CIA,  The  World  Factbook   0   5   10   15   1990   1991   1992   1993   1994   1995   1996   1997   1998   1999   2000   2001   2002   2003   2004   2005   2006   2007   2008   2009   2010   %  of  Total  Labor  Force   Unemployment  (%  of  total  labor  force),   1990-­‐2010   Unemployment,  total  (%  of  total  labor  force)   Source:  World  Bank   From   Exhibit  A     0   20   40   60   80   100   120   InflaKon,  consumer  prices  (annual  %)  1990-­‐2011   Infladon,  consumer  prices  (annual  %)   Source:  World  Bank     From  Exhibit  A    
  • 6     D. Interest  Rates   As  well  as  in  its  inflation,  Turkey  has  found  stability  in  its  interest  rate.  After  a  period  in  which   Turkey’s   benchmark   interest   rate   would   fluctuate   around   100%,   reaching   peaks   of   up   to   500%,   the   Turkish  economy  has  maintained  a  constant  decline  in  its  interest  rate  since  2002.  By  maintaining  levels   under   40%,   the   Central   Bank   of   Turkey   has   promoted   investment   and   expansion,   while   discouraging   capital  inflows.                      
  • 7     E. Exchange  Rates   Since   2005,   the   Turkish   Lira   has   depreciated   close   to   30%   compared   to   USD   and   EUR.   This   depreciation,  however,  boosts  Turkish  exports  by  making  their  products  cheaper  and  more  competitive,   especially  when  competing  with  products  from  the  European  Union  (Turkey’s  main  trade  partner).  The   two   highest   depreciations   of   the   Turkish   Lira   were   on   2008   and   2011   (see   graph   below),   which   is   explained  by  the  financial  crisis  in  2008  and  the  downturn  in  the  EU’s  financial  and  economic  situation   since  2011.     F. Balance  of  Trade     Trade  has  a  significant  importance  on  Turkey’s  economy.  Since  1994,  trade  accounts  for  over   40%  of  Turkey’s  GDP.  Not  only  does  Turkey’s  strategic  geographic  location  help  promote  trade,  Turkey   joined  the  World  Trade  Organization  in  1995  and  signed   free   trade   and   custom   union   agreements   with   all   European   Union   members.   In   fact,   the   EU   is   Turkey’s   main   trade   partner   in   both   imports   and   exports,   followed  by  Russia,  USA,  UAE,  Iran  and  Iraq (HSBC).   0   10   20   30   40   50   60   Trade  as  %  of  GDP   Trade   (%  of   GDP)   Source:  World  Bank     From   Exhibit  A    
  • 8       Turkey’s  focus  on  services  has  taken  a  toll  on  its  Balance  of  Trade.  Turkey  is  not  producing  nearly   as   many   goods   as   their   economy   demands,   resulting   in   a   large,   constantly   increasing   deficit   in   the   Balance  of  Trade.     Even  though  Turkey’s  exports  on  services  are  twice  as  much  as  their  imports,  the  surplus  is  only   of  US$20  billion,  compared  to  a  deficit  of  close  to  US$100  billion  on  goods.  When  analyzing  the  graphs,   it  is  noticeable  that  Turkey’s  focus  on  services  has  not  paid  off  in  their  trade  accounts.             On   the   other   hand,   Turkey’s   trade   of   goods   has   increased   exponentially   since   2002,   by   100   billion  USD  in  its  exports  and  over  150  billion  USD  in  its  imports,  while  its  trade  of  services  has  grown   much  slower.   0   5   10   15   20   25   30   35   40   45   Current  USD  billions   Service  Exports  and  Imports,  1990-­‐2011   Service  exports   (BoP,  current  US $)   Service  imports   (BoP,  current  US $)   Source:  World  Bank     From  Exhibit  A     0   50   100   150   200   250   1990  1992  1994  1996  1998  2000  2002  2004  2006  2008  2010   Current  USD  billions   Goods  Exports  and  Imports,  1990-­‐2011   Goods   imports   (BoP,   current  US $)   Goods   exports   (BoP,   current  US $)   From  Exhibit  A    
  • 9       Turkey’s   trade   agreements   include all   EU   members,   Albania,   Bosnia   Herzegovina,   Croatia,   Switzerland,   Norway,   Iceland   and   Liechtenstein,   Egypt,   Georgia,   Israel,   Macedonia,   Montenegro,   Morocco,  Palestine,  Georgia,  Serbia,  Chile,  Tunisia  and  Syria  (HSBC). III. Turkey’s  Financial  Situation   Of  late,  Turkey  is  one  of  the  world’s  fastest  growing  economies.    In  recent  years,  Turkey  has   made  a  significant  push  to  reduce  government  spending  and  in  turn,  has  reduced  the  overall  public  debt   to  39%  of  GDP  in  2011.    This  is  expected  to  drop  another  1.5  points  in  2012  according  to  the  IMF (Port Turkey).    To  put  this  in  perspective,  Turkey  has  a  lower  public  debt  to  GDP  ratio  than  countries  such  as   Japan,  USA  and  England,  placing  Turkey  amongst  lowest  levels  of  public  debt  to  GDP  in  the  world.    This  is   a  positive  indication  to  potential  investors,  as  it  gives  them  confidence  Turkey  is  currently  making,  and   will  continue  to  make  future  payments  on  debt.    Therefore,  Turkey  will  see  significantly  lower  interest   rates  on  debt  as  well  as  investors  will  move  forward  with  more  confidence  in  regard  Turkish  government   bonds.         Unfortunately,   while   the   public   debt   has   been   on   the   decline   in   recent   years,   the   country’s   private   debt   continues   to   increase.     As   they   continue   to   grow   and   attract   attention   in   the   world   economy,  there  is  increased  focus  on  Turkey  reducing  their  deficit,  particularly  in  regard  to  private  debt.     0   20   40   60   80   100   120   140   160   1990  1992  1994  1996  1998  2000  2002  2004  2006  2008  2010   Current  USD  billions   Exports,  Goods  and  Services.  1990-­‐2011   Goods   exports   (BoP,   current   US$)   Service   exports   (BoP,   current   US$)   Source:  World   Bank    From  Exhibit  A     0   50   100   150   200   250   1990  1992  1994  1996  1998  2000  2002  2004  2006  2008  2010   Current  USD  billions   Imports,  Goods  and  Services.  1990-­‐2011   Goods   imports   (BoP,   current   US$)   Service   imports   (BoP,   current   US$)   Source:  World  Bank     From   Exhibit  A    
  • 10     Of  Turkey’s  $143B  in  foreign  debt  service,  over  85%  belongs  to  the  private  sector.    Netting  the  public   and  private  debt,  Turkey  has  remained  relatively  flat  in  relation  to  total  debt  service  over  the  last  ten   years  with  the  exception  of  a  spike  in  2009  relating  to  the  economic  crisis  felt  around  the  world.         IV. Monetary,  Fiscal  and  Economic  Policies   At  the  moment,  Turkey  is  one  of  the  fastest  growing  economies  and  has  had  a  rapidly  growing   GDP.    Because  it  has  been  growing  so  quickly,  Turkey  has  experienced  some  economic  problems.    One  of   them  is  that  it  has  had  a  higher  inflation  then  the  central  bank’s  target,  meaning  that  the  Turkish  lira  is   worth   less   than   desired.   Along   with   this,   Turkey   is   also   extremely   dependent   on   foreign   capital   to   stimulate  its  economy,  something  that  makes  the  country  very  vulnerable.  Since  Turkey  is  so  dependent   on  foreign  countries,  these  partnerships  determine  if  the  country  has  enough  capital  inflow  or  not.  If  the   global  economy  is  weak  and  investors  are  not  confident  in  the  Turkish  economy,  they  will  not  invest  in   the  country  and  Turkey  will  suffer.  On  the  other  hand,  if  investors  have  a  positive  outlook  and  are  willing   to  take  risks,  they  will  invest  in  Turkey  resulting  in  more  capital  inflow.       Regarding   Turkey’s   monetary   policy,   it   does   not   have   a   specific   benchmark   interest   rate   targeted  in  order  to  maintain  economic  stability.  Instead,  the  Central  Bank  of  the  Republic  of  Turkey   (CBRT)  has  a  wide  interest-­‐rate  “corridor”  that  it  uses  accordingly.  When  it  has  a  large  amount  of  capital   inflows  and  foreign  investors  are  confident  about  the  economy,  resulting  in  more  money  inflow,  the   CBRT   sets   a   lower   borrowing   rate   within   that   corridor,   which   discourages   foreign   investors   from   investing  in  the  country.  This  reduces  the  “hot  money”  that  is  put  into  the  country,  which  is  the  money   invested  into  Turkey  by  foreign  countries  so  that  they  can  gain  on  interest  rate  differences.  On  the  other   hand,  when  there  are  not  a  lot  of  capital  flows  within  Turkey,  a  higher  interest  rate  at  the  top  of  the   corridor  is  used.  This  encourages  more  investments  so  that  cash  inflow  in  increased  once  again.  Turkey  
  • 11     regulates  how  much  capital  inflow  in  coming  into  the  country  by  increasing  or  decreasing  the  interest   rate   within   the   corridor,   appropriately.   This   monetary   policy   is   criticized   by   some   saying   that   Turkey   should   use   the   more   common   method   of   having   a   benchmark   interest   rate   rather   than   using   the   corridor   previously   explained.   Since   there   is   no   benchmark   interest   rate,   banks   are   affected   because   they  do  not  know  what  the  lira  will  be  worth  therefore  they  do  not  know  how  to  price  the  loans.  The   CBRT  supports  its  method  believing  that  this  is  the  best  way  that  they  can  control  the  foreign  capital   inflow  (The  Economist).   Due  to  the  fact  that  there  has  been  significant  depreciation  of  the  Turkish  lira  in  the  past  year,   the  CBRT  widened  the  interest-­‐rate  corridor  upwards  and  increased  the  lending  rates  in  October  2011,   meaning  that  the  policy  has  been  contractionary.    This  has  helped  because  it  decreased  the  volatility  of   exchange   rates,   compared   to   other   emerging   market   economies   (Central   Bank   of   the   Republic   of   Turkey).   The   Central   Bank   has   continued   tightening   monetary   policy   this   year   in   order   to   fight   the   continuing  depreciation  of  the  lira.         Regarding  Turkey’s  fiscal  policy,  the  country  performed  fiscal  reforms  after  the  serious  financial   crisis  that  affected  the  world  in  2001,  which  strengthened  the  country’s  economy  to  about  6%  growth   per  year  up  until  2008  (IndexMundi).  Towards  the  end  of  2008  and  into  2009  and  on,  the  country  was   impacted  once  again  by  the  global  financial  crisis  and  experienced  increasing  budget  deficits;  during  that   time,   Turkey   implemented   some   fiscal   stimulus   packages,   which   resulted   in   a   further   drop   in   fiscal   balances.  The  fiscal  stimulus  packages  included  efforts  to  promote  consumption  spending  by  reducing   consumption  tax  rates.  There  were  also  measures  put  forth  to  help  lessen  unemployment  by  allowing   people  to  work  for  fewer  days  a  week  and  also  through  the  implementation  of  training  programs.  It  was   estimated  that  the  cost  of  these  stimulus  packages  was  about  0.8%,  2.1%,  and  1.6%  of  GDP  in  2008,   2009,  and  2010,  respectively  (Uyger).  In  the  past  two  years,  Turkey  has  reduced  its  government  deficit,  
  • 12     but  according  to  Moody’s,  this  has  been  due  to  reduced  expenditure  and  not  increased  revenue.  It  is   believed   by   some   economists   that   the   “budget   deficit   may   rise   to   as   much   as   2.6%   of   GDP   because   government   revenues   are   too   dependent   on   economic   growth   and   the   tax   breaks   to   exporters   limit   gains  from  rising  foreign  sales”  (Peker).   V. Economic  Forecast   Turkey’s   five   year   economic   forecast   is   promising.     There   is   significant   growth   in   GDP   and   gross   exports   through   2017.     Specifically   with   GDP,   there   is   an   expected   6.7%  average  growth  over  the  next  five  years   putting   Turkey   on   pace   to   be   the   highest   growth  nation  in  regard  to  GDP  among  the  OECD  nations.       The   Turks   are   placing   heavy   emphasis   on   increased   exports   to   neighboring  nations  in  an  effort  to  decrease   the  nation’s  trade  deficit.    This  is  evidenced   by   their   recent   agreement   between   Sberbank,   the   largest   bank   in   Russia   and   Eastern  Europe,  and  the  Turkish  Eximbank.    The  agreement  calls  for  1  billion  USD  to  increase  Turkey’s   exports  into  Russia  and  Eastern  European  nations.  (Port Turkey)     8.00   10.00   12.00   14.00   16.00   18.00   20.00   2010   2011   2012   2013   2014   2015   2016   2017    Current  InternaKonal  Dollars  (in   thousands)   Turkey  GDP  per  capita  (PPP)   From  Exhibit  C   0   1   2   3   4   5   6   7   2010   2011   2012   2013   2014   2015   2016   2017   Growth  %   Turkey's  Expected  Growth  in  Exports  of   Goods  and  Services   From  Exhibit  C    
  • 13       Even   though   the   expected   forecast   is   favorable,   Turkey   is   an   emerging   nation   with   a   volatile   history  of  political  and  socio-­‐economic  turmoil.    Any  weight  to  this  forecast  must  be  applied  with  caution   as  there  are  many  underlying  factors  that  can  potentially  affect  their  economic  performance.       VI. Trade  Barriers   Trade  barriers  are  any  type  of  policy  that  puts  restrictions  on  (international)  trade  in  any  way.  In   Turkey,  trade  barriers  are  the  norm.  Turkey  is  a  member  of  the  World  Trade  Organization  (WTO)  and  has   been  since  March  of  1995 (World Trade Organization).  Also,  according  to  the  Office  of  the  United  States   Trade  Representative,  Turkey  is  currently  the  twenty-­‐first  largest  export  market  for  United  States  goods   (U.S.T.R.)  which  is  fairly  substantial  for  our  country.  Some  of  these  barriers  to  trade  include  import   policies,  investment  barriers,  and  barriers  to  owning  real  estate.     Turkey  has  free  trade  agreements  with  all  EU  member  countries (U.S.T.R.).  But  with  this  being   said,  certain  import  policies  include  high  tariffs  on  certain  products  such  as  agricultural  products  (fruit   for  example)  and  in  addition,  in  2011  the  government  in  Turkey  decided  to  increase  tariffs  on  apparel.   Special  “import  licenses”  are  also  needed  for  importing  from  Turkey.  Through  some  research,  it  seems   as   though   the   process   of   receiving   one   of   these   import   licenses   is   lengthy   and   difficult.   It   is   unclear   whether  or  not  Turkey  wants  its  import  licenses  to  be  hard  to  obtain.  It  could  be  the  fact  that  whatever   countries   are   willing   to   go   through   the   process   are   worthy   of   sharing   the   wealth   in   Turkey’s   goods.                 Certain   investment   barriers   in   Turkey   include,   but   are   not   limited   to,   the   energy   market   and   dominance  in  the  oil  industry.  In  Turkey,  the  energy  market  seems  to  be  mostly  privatized,  making  this   area  difficult  to  invest  in.  The  importation  of  gas  also  seems  to  be  a  difficult  area  to  become  involved  in.   “BOTAS”   has   remained   the   dominant   importer   of   gas   and   owns   a   whopping   86%   of   the   market.                 In   general,   foreign-­‐owned   real   estate   has   been   a   reoccurring   issue.   Some   of   the   barriers   to  
  • 14     owning   real   estate   in   Turkey   are   very   interesting.   From   the   Office   of   the   United   States   Trade   Representative  website,  it  was  stated  that:   No  foreign  individual  may  own  more  than  2.5  acres,  and  all  foreign  individuals  together  can   own  no  more  than  10%  of  the  land  in  any  given  developmental  zone…there  are  however,   no  limits  on  the  amount  of  land  that  can  be  owned  by  foreign  companies  with  a  legal   presence  in  Turkey,  so  long  as  the  land  is  being  used  in  connection  with  their  business   activities. (U.S.T.R.)     In  doing  research,  it  was  clear  that  there  is  not  much  information  on  real  estate  available  in  Turkey  and   who  owns  what,  which  might  create  trouble  for  investors  hoping  to  enter  the  markets  in  Turkey.  This   may  be  an  area  that  can  be  improved  upon  in  the  future.             Some   miscellaneous   barriers   to   trade   include   but   are   not   limited   to   internet   usage,   certain   career  practices,  and  elements  of  the  judicial  system.  There  have  been  past  court  decisions  that  have   blocked  certain  websites  in  Turkey  such  as  YouTube  and  MySpace.  Details  are  not  completely  clear,  but   the   restrictions   on   certain   internet   website   usage   are   a   barrier   that   Turkey   has   decided   to   pursue.   Career  practices  such  as  accounting,  law,  and  medicine  are  strictly  monitored.  According  to  the  Office  of   the  United  States  Trade  Representative,  to  be  an  accountant  or  a  lawyer  in  Turkey,  one  needs  to  have   Turkish  citizenship.  If  one’s  career  is  in  medicine,  one  might  need  approval  in  order  to  be  a  “foreign   doctor”  in  Turkey.  Finally,  the  judicial  system  is  looked  upon  as  to  be  biased  against  anyone  from  outside   of  the  country.  It  could  be  difficult  to  be  involved  in  a  situation  where  the  law  is  not  on  the  side  of  the   victim,  but  on  the  side  of  the  citizen.  This  is  another  way  that  investing  in  or  become  involved  within  the   borders  of  Turkey  could  be  a  possible  challenge.      
  • 15     VII. International  Transaction  Accounts   While   Turkey’s   Capital   Account   on   its   Balance   of   Payments   (refer   to   Exhibits   A   and   B)   has   maintained  a  deficit  for  almost  every  year  since  1990,  the  Financial  Account’s  surplus  (mostly  driven  by   direct  and  portfolio  investments  in  Turkey)  has  provided  the  balance  needed.  Turkey’s  global  balance   has  had  a  surplus  in  almost  every  year  since  1990,  with  the  exceptions  of  2000,  2001  and  2008.  Turkey’s   reserve  assets  account  has  decreased  by  US$72  billions  since  1990.   VIII. Conclusion   Turkey’s  current  economic  climate  is  extremely  complex  and  interconnected  with  the  future  of   different   regions   around   the   world.     Therefore,   to   provide   a   summary   of   Turkey’s   current   economic   status  as  well  as  their  potential  future  involvement  in  the  world  economy,  a  SWOT  analysis  will  provide   the  necessary  insight  to  understand  the  full  picture. A. Strengths   • Turkey’s   geographic   location,   the   bridge   between   Asia   and   Europe,   gives   them   access   to   the   world’s  oceans  as  a  distribution  channel  and  major  world  port  between  the  two  continents.    This   has  led  to  economic  integration,  such  as  the  Customs  Union  between  Turkey  and  the  European   Union,  allowing  them  relatively  free  trade  with  the  participating  nations.     • Due   to   Turkey’s   physical   location   and   the   economic   integration   with   the   EU,   Turkey   has   the   highest   rate   of   GDP   growth   among   OECD   countries,   forecasted   through   2017   at   an   expected   6.7%.     • Further  support  to  this  forecasted  growth  can  be  explained  by  Turkey’s  year  over  year  decrease   in  public  debt  in  relation  to  GDP.    As  previously  mentioned,  Turkey’s  public  debt  to  GDP  ratio   ranks  8th  in  the  world  at  37%.          
  • 16     B. Weaknesses       • As  Turkey  continues  to  grow  into  one  of  the  world’s  leading  economies,  their  dependence  on   Foreign   Direct   Investment   is   becoming   a   potential   weakness   in   terms   of   economic   stability.     Much   of   the   nation’s   FDI   is   in   the   form   of   soft   assets   within   the   financial   sector,   causing   the   investment   to   be   extremely   liquid   and   therefore   volatile   from   the   Turkish   perspective.   •  As  a  bridge  between  Europe  and  Asia,  Turkey  is  inherently  diverse.    While  in  a  sense  this  is  part   of  Turkey’s  appeal  throughout  the  world,  it  creates  a  dichotomy  between  eastern  and  western   Turkey.    Not  only  is  there  a  cultural  barrier  but  there  is  a  socio-­‐economic  division  between  the   regions,  as  the  east  is  primarily  a  local  agricultural  economy  versus  the  west  where  industry,   western  banking  and  political  stability  dominate  the  landscape.    With  the  continuing  economic   growth  of  the  nation,  Turkey  will  need  to  address  these  contrasting  regions  in  effort  to  stave  off   political  turmoil  and  create  a  stable  nationwide  infrastructure.     C. Opportunities       • Over  the  last  decade,  Turkey  has  been  fulfilling  requirements  set  forth  by  the  European  Union  in   an   effort   to   become   part   of   the   economic   union.   If   Turkey   is   admitted   into   the   EU,   the   opportunities  for  growth  and  expansion  would  skyrocket,  since  Turkey  would  be  able  to  take   advantage  of  all  of  EU’s  trade  agreements  with  other  countries.     • Second   only   to   the   EU,   Turkey’s   trade   partnership   with   Russia   is   perhaps   the   most   realistic   opportunity.     Russia’s   recent   focus   on   their   economic   policy   towards   open   trade   and   their   recent   admittance   into   the   World   Trade   Organization,   will   result   in   easier   trade   with   lower   tariffs.  The  size  and  ease  of  access  into  the  Russian  market,  along  with  all  of  Turkey’s  free  trade  
  • 17     agreements   with   19   other   countries,   hedge   against   the   inherent   risk   of   tying   the   Turkish   economy  to  the  EU.   D. Threats     • As  mentioned  above,  Turkey  has  been  steering  their  economy  in  the  direction  advised  by  the  EU   in  effort  to  join  the  union.    As  the  Turkish  economy  gains  strength  in  the  world’s  eyes,  recent   economic  uncertainty  within  the  EU  has  presented  a  potential  threat.    If  the  nation  continues  to   drive  their  economy  with  the  goal  of  joining  the  EU  as  their  main  strategy,  Turkey’s  economy  will   risk  their  future  on  the  success  of  the  European  Union.   • Turkey’s  diversity  is  a  key  factor  of  their  recent  and  future  success.    As  the  bridge  between  the   two   continents,   the   nation   plays   host   to   cultures   across   the   globe.     The   rewards   that   are   inherently   tied   to   cultural   diversity   do   not   come   without   potential   threats.    As   home   to   a   substantial   Islamic   population   and   due   to   their   close   proximity   to   the   Middle   East,   Turkey’s   future  is  influenced  by  the  future  of  that  region.    As  political  instability  within  the  Middle  East   continues  to  mount,  the  Turkish  economy  will  continue  to  be  viewed  as  a  volatile  investment,   particularly  in  the  near  future  as  the  eastern  boarder  remains  a  battleground  with  neighboring   Syria.  
  • 18     IX. Exhibits   A. Exhibit  A   1990 1991 1992 1993 1994 1995 GDP (constant 2000 US$) 186,641,240,190 187,985,577,937 197,451,845,376 212,559,409,689 202,636,823,219 218,601,092,943 GDP (current US$) 150,676,291,094 151,041,248,184 159,095,003,188 180,422,294,772 130,690,172,297 169,485,941,048 GDP growth (annual %) 9 1 5 8 -5 8 GDP per capita growth (annual %) 7 -1 3 6 -6 6 GDP per capita, PPP (current international $) 4,430 4,551 4,855 5,271 5,004 5,387 GDP, PPP (current international $) 239,819,132,073 250,619,631,570 271,925,404,605 300,242,861,558 289,800,534,768 317,086,230,459 Goods exports (BoP, current US$) 13,026,000,000 13,667,000,000 14,891,000,000 15,611,000,000 18,390,000,000 21,975,000,000 Goods imports (BoP, current US$) 22,453,000,000 20,947,000,000 22,942,000,000 29,655,000,000 22,524,000,000 35,089,000,000 Imports of goods and services (% of GDP) 18 17 17 19 20 24 Imports of goods and services (annual % growth) 33 -5 11 36 -22 30 Imports of goods and services (BoP, current US$) 25,524,000,000 24,165,000,000 26,567,000,000 33,603,000,000 26,306,000,000 40,113,000,000 Present value of external debt (current US$) .. .. .. .. .. .. Service exports (BoP, current US$) 8,016,000,000 8,372,000,000 9,407,000,000 10,652,000,000 10,801,000,000 14,606,000,000 Service imports (BoP, current US$) 3,071,000,000 3,218,000,000 3,625,000,000 3,948,000,000 3,782,000,000 5,024,000,000 Short-term debt (% of total external debt) 19 18 22 27 17 21 Short-term debt (% of total reserves) 125 138 169 236 131 113 Trade (% of GDP) 31 30 32 33 42 44 Inflation, consumer prices (annual %) 60 66 70 66 106 88 Unemployment, total (% of total labor force) 8 8 9 9 9 8 Population, Total 54,130,268 55,068,880 56,012,109 56,959,988 57,911,273 58,864,649                      
  • 19     1996 1997 1998 1999 2000 2001 GDP (constant 2000 US$) 234,733,120,142 252,520,406,456 258,349,119,484 249,654,780,792 266,567,531,990 251,379,908,801 GDP (current US$) 181,475,555,283 189,834,649,111 269,287,100,115 249,751,470,869 266,567,531,990 196,005,288,838 GDP growth (annual %) 7 8 2 -3 7 -6 GDP per capita growth (annual %) 6 6 1 -5 5 -7 GDP per capita, PPP (current international $) 5,797 6,257 8,675 8,258 9,263 8,690 GDP, PPP (current international $) 346,768,074,993 380,341,945,096 535,617,055,794 517,741,406,393 589,414,041,958 560,919,094,801 Goods exports (BoP, current US$) 32,067,000,000 32,110,000,000 30,741,000,000 29,031,000,000 30,825,000,000 34,729,000,000 Goods imports (BoP, current US$) 42,331,000,000 47,158,000,000 44,779,000,000 38,802,000,000 52,882,000,000 38,092,000,000 Imports of goods and services (% of GDP) 28 30 20 19 23 23 Imports of goods and services (annual % growth) 21 22 2 -4 22 -25 Imports of goods and services (BoP, current US$) 48,757,000,000 55,664,000,000 54,637,000,000 47,751,000,000 61,035,000,000 44,190,000,000 Present value of external debt (current US$) .. .. .. .. .. .. Service exports (BoP, current US$) 13,083,000,000 19,418,000,000 23,376,000,000 16,451,000,000 19,528,000,000 15,234,000,000 Service imports (BoP, current US$) 6,426,000,000 8,506,000,000 9,858,000,000 8,949,000,000 8,153,000,000 6,098,000,000 Short-term debt (% of total external debt) 22 21 22 23 25 14 Short-term debt (% of total reserves) 97 91 103 96 123 82 Trade (% of GDP) 49 55 42 39 43 51 Inflation, consumer prices (annual %) 80 86 85 65 55 54 Unemployment, total (% of total labor force) 7 7 7 8 7 8 Population, Total 59,821,978 60,783,217 61,742,674 62,692,616 63,627,862 64,544,914                          
  • 20       2002 2003 2004 2005 2006 GDP (constant 2000 US$) 266,874,563,574 280,926,215,534 307,228,800,117 333,040,988,667 355,999,132,580 GDP (current US$) 232,534,560,775 303,005,302,818 392,166,274,991 482,979,839,238 530,900,094,505 GDP growth (annual %) 6 5 9 8 7 GDP per capita growth (annual %) 5 4 8 7 5 GDP per capita, PPP (current international $) 8,741 8,861 10,238 11,465 12,961 GDP, PPP (current international $) 572,093,632,799 587,855,258,606 688,340,961,055 781,243,404,330 895,162,804,839 Goods exports (BoP, current US$) 40,719,000,000 52,394,000,000 68,535,000,000 78,365,000,000 93,613,000,000 Goods imports (BoP, current US$) 47,109,000,000 65,883,000,000 91,271,000,000 111,445,000,000 134,669,000,000 Imports of goods and services (% of GDP) 24 24 26 25 28 Imports of goods and services (annual % growth) 21 24 21 12 7 Imports of goods and services (BoP, current US$) 53,270,000,000 73,385,000,000 101,434,000,000 123,195,000,000 146,720,000,000 Present value of external debt (current US$) .. .. .. .. .. Service exports (BoP, current US$) 14,046,000,000 18,013,000,000 22,960,000,000 26,906,000,000 25,606,000,000 Service imports (BoP, current US$) 6,161,000,000 7,502,000,000 10,163,000,000 11,750,000,000 12,051,000,000 Short-term debt (% of total external debt) 13 16 19 23 21 Short-term debt (% of total reserves) 58 65 83 73 67 Trade (% of GDP) 49 47 50 47 50 Inflation, consumer prices (annual %) 45 25 11 10 11 Unemployment, total (% of total labor force) 10 11 11 11 10 Population, Total 65,446,165 66,339,433 67,235,927 68,143,186 69,063,538              
  • 21     2007 2008 2009 2010 2011 GDP (constant 2000 US$) 372,619,233,720 375,074,194,705 356,973,581,803 389,661,484,658 422,738,755,426 GDP (current US$) 647,155,131,629 730,337,495,198 614,553,921,823 731,144,392,556 773,091,360,340 GDP growth (annual %) 5 1 -5 9 8 GDP per capita growth (annual %) 3 -1 -6 8 7 GDP per capita, PPP (current international $) 13,947 15,058 14,454 15,624 17,499 GDP, PPP (current international $) 976,166,553,401 1,067,943,794,2 37 1,038,438,711,5 94 1,136,698,730,1 06 1,288,637,792,4 12 Goods exports (BoP, current US$) 115,361,000,000 140,800,000,000 109,647,000,000 120,902,000,000 143,397,000,000 Goods imports (BoP, current US$) 162,213,000,000 193,821,000,000 134,497,000,000 177,347,000,000 232,538,000,000 Imports of goods and services (% of GDP) 27 28 24 27 29 Imports of goods and services (annual % growth) 11 -4 -14 21 -2 Imports of goods and services (BoP, current US$) 177,957,000,000 211,809,000,000 151,292,000,000 196,858,000,000 253,630,000,000 Present value of external debt (current US$) .. .. .. 270,204,151,670 .. Service exports (BoP, current US$) 29,027,000,000 35,736,000,000 34,111,000,000 35,004,000,000 39,366,000,000 Service imports (BoP, current US$) 15,744,000,000 17,988,000,000 16,795,000,000 19,511,000,000 21,092,000,000 Short-term debt (% of total external debt) 17 19 18 27 .. Short-term debt (% of total reserves) 56 72 66 91 .. Trade (% of GDP) 50 52 48 48 50 Inflation, consumer prices (annual %) 9 10 6 9 6 Unemployment, total (% of total labor force) 10 11 14 12 .. Population, Total 69,992,754 70,923,730 71,846,212 72,752,325  
  • 22     B. Exhibit  B   Source: Central Bank of the Republic of Turkey
  • 23     C. Exhibit  C   Source: International Monetary Fund
  • 24     X. Works  Cited   Central  Bank  of  the  Republic  of  Turkey.  CBRT  Electronic  Data  Delivery  System.  4  December  2012   <http://evds.tcmb.gov.tr/yeni/cbt-­‐uk.html>.   —.  "Monetary  and  Exchange  Rate  Policy  for  2012."  2011.  4  December  2012   <http://www.tcmb.gov.tr/yeni/announce/2012/  Mon_Exc_Pol_2012.pdf>.   CIA.  The  World  Factbook.  Washington,  21  November  2012.   Foreign  and  Commonwealth  Office.  "Country  Profile:  Turkey."  22  February  2012.  Foreign  and   Commonwealth  Office.  6  December  2012  <http://www.fco.gov.uk/en/travel-­‐and-­‐living-­‐abroad/travel-­‐ advice-­‐by-­‐country/country-­‐profile/europe/turkey>.   HSBC.  Country  Guide:  Turkey.  2012.  HSBC  in  association  with  PWC.  9  December  2012   <http://globalconnections.hsbc.com/united-­‐kingdom/en/tools-­‐data/country-­‐guides/tr/trade>.   IndexMundi.  "Turkey  Economic  Profile."  2012.  IndexMundi.  4  December  2012   <www.indexmundi.com/turkey/economy_profile.html>.   International  Monetary  Fund.  Data  &  Statistics.  2012.   Peker,  E.,  &  Candemir,  Y.  "Fiscal  Discipline  at  Risk  as  Turkey  Slows."  Wall  Street  Journal  (2012).   Port  Turkey.  Sberbank  and  Eximbank  Agrees  on  1  Billion  Dollars.  7  December  2012.  10  December  2012   <http://www.portturkey.com/finance/3910-­‐sberbank-­‐and-­‐eximbank-­‐agrees-­‐on-­‐1-­‐billion-­‐dollars>.   —.  "Turkey  Gets  Over  Public  Debt."  22  October  2012.  Port  Turkey.  4  December  2012   <http://www.portturkey.com/finance/3413-­‐turkey-­‐gets-­‐over-­‐public-­‐debt>.   Republic  of  Turkey.  Ministry  of  Economy.  4  December  2012  <http://www.tcp.gov.tr/>.   The  Economist.  "Istanbuls  and  Bears."  The  Economist  (2012).   Trading  Economics.  Turkey  Balance  of  Trade.  December  2012.  4  December  2012   <http://www.tradingeconomics.com/turkey/balance-­‐of-­‐trade>.   —.  Turkey  Interest  Rate.  December  2012.  4  December  2012   <http://www.tradingeconomics.com/turkey/interest-­‐rate>.   U.S.T.R.  "Turkey."  2012.  Office  of  the  United  States  Trade  Representative.  4  December  2012   <http://www.ustr.gov/sites/default/files/Turkey.pdf>.   Uyger,  E.  "The  Global  Crisis  and  the  Turkish  Economy."  2010.  Twn  Global  Economic  Series.  4  December   2012  <http://www.finance.thirdworldnetwork.net/file_dir/  6158100194dca5b2b6bb0f.pdf>.  
  • 25     World  Trade  Organization.  "Turkey  and  the  WTO."  21  February  2012.  World  Trade  Organization:   Member  Information.  6  December  2012  <http://wto.org/english/thewto_e/countries_e/turkey_e.htm>.