Country Analysis of Turkey

Table of contents

List of figures

List of abbreviations

Abstract

1 Introduction

2 PESTEL Analysis
2.1 Political
2.2 Economic
2.3 Socio-Cultural
2.4 Technological
2.5 Environmental
2.6 Legal

4 Conclusion

Bibliography

List of figures

Figure 1: Turkey's trade in 2012

Figure 2: Population Pyramid

Figure 3: Allocation of Turkey investment budget

Figure 4: Turkish railway network 2023

Figure 5: Earthquake risks in Turkey

Figure 6: SWOT- Analysis of Turkey

List of abbreviations

illustration not visible in this excerpt

Abstract

The importance of Turkey has risen steadily in recent years. The emerging market is the 17th largest economy in the world and plays the role of a strategic partner between the West and the Middle East. This scientific paper analyses Turkey from a business perspective. With a PESTLE analysis, an overview of Turkey is provided and strengths, weaknesses, opportunities and risks of an investment in the country are illustrated with a SWOT analysis.

1 Introduction

The importance of Turkey has been rising over the past decade. This can be justified from the rapid economic growth, industrializaition, and modernization. Currently, Turkey is an emering market and the 17th largest economy in the world.¹ The country plays the role of a strategic partner between the West and the Middle East.

According to Cavusgil, emerging markets such as China, Turkey, India, Russia and Brazil offer certain risks for international business: political instability, weak intellectual property protection, bureaucracy and lack of transparency.²

There is hardly any current literature that solely deals with Turkey from a business perspective. This work aims at filling this research gap. The aim of this work is to show the strengths, weaknesses, risks and chances of an enterprise in Turkey on the basis of a SWOT analysis.

The structure of the research concept is made with a PESTEL analysis. The analysis of the political (P), economic (E), socio-cultural (S), technological (T), environmental (E) and legal (L) structure of Turkey will help to find out whether emerging market risks are valid for Turkey.

2 PESTEL Analysis

2.1 Political

Mustafa Kemal Atatürk was the founder of Turkish republic in 1923 following the defeat of the Ottoman Empire. Today, Turkey is a parliamentary republic with the separation of the judiciary, executive and legislative branches. According to the constitution framed in 1982, Turkey is a secular and social democracy.³ Currently, the Islamic conservative Justice and Development Party is ruling. The Turkish government is committed to a liberal trade policy. Since 1995, Turkey has a customs union agreement with the European Union (EU) and free trade agreements with over 22 countries around the world.⁴ Thus, companies benefit from an unrestricted flow of certain goods and services.

Moreover, Turkey has been an EU pre-accession country since 1999. The negotiations for accession began in 2005.⁵ The EU stands for transparency and democracy.⁶ If Turkey can implement the EU requirements, companies have the security of investing in a country with democratic legislation.

In 2012, the Turkish government provided an incentive system to encourage investments. Main incentive tools are exemption from customs duty, VAT, other taxes and support for employer share. The extent of support depends on the level of development in the region. Regions are divided into six groups. According to the system, companies that invest in region six benefit most from the exemptions and subvention.⁷ The reason is that southeast of Turkey is underdeveloped and susceptible to terrorist attacks from the Kurdish terrorist organization, PKK. Besides, Turkey shares border with Syria which is afflicted with civil war.

Investors are also aware of the political instability of Turkey till date. The military staged three coups against Islamic governments (in 1960; in 1971; in 1980). The reason for the coup was that Turkey is a secular state which espouses separation of state and religion.⁸ Hence, companies have to keep in mind that their existence could be jeopardized by yet another military coup.

Moreover, the authoritarian leadership of Prime Minister Erdogan led to an instability of the country. The nationwide protests against the government in June 2013 (Gezi park protests) had a strong impact on the economic stability.

2.2 Economic

With a gross domestic product (GDP) share of 1.2% of the world economy, Turkey was the 17th largest economy in 2013.⁹ The Turkish gross domestic product (GDP) per capita was about $14,800 in 2012. Compared to Germany ($38,100)¹⁰, it is relatively low, but the Turkish economy has grown very strongly since 2003. The GDP per capita has nearly trebled¹¹ and a consistent economic growth between 0.66% and 9.36% (not just in 2009) has been secured.¹²

The GDP of Turkey comprises 9% of agriculture, 27% of industry and 64% of service. Of these, the strongest sectors of economy are textile industry, auto industry, machine industry and mancufacturing industry in recent years. In future, investors can expect that communication and information technology, logistic and environmental economic sectors will be among the leading sectors.¹³

Figure 1 shows the main trading partners of Turkey and products. Turkey exported goods worth about $152.5 billion in 2012. The country is the 33rd largest exporter.¹⁴ The main export partners in 2012 were Germany, Iraq, Iran, United Arab Emirates and the United Kingdom. Textiles and clothing, automotive, iron and steel and white goods are the main items of export. In 2012, Turkey imported goods worth $236.5 billion. The main import partners are Russia, Germany, China, the US and Italy. Primarily, machines, chemicals, semi-finished goods and fuels are imported. Thus it can be seen that the EU and the Middle East countries are

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Figure 1 : Turkey s trade in 2012

In recent years, many Turkish government companies and even bridges and highways were privatized. In addition, government banks and the tobacco monopoly will also be privatized soon. Therefore, investors have the chance to get entry into these markets.¹⁵

Despite the rising economy, the stability has been under threat since 2003. First, with an inflation rate of 6.52% (2013),¹⁶ Turkey is well over the European average of 1.94% (2013).¹⁷ Secondly, Turkey imported more than it exported and had a trade deficit of $59.74 billion in 2012.¹⁸ Thirdly, the economy strongly depended on foreign direct investments (FDI) and the inflows amounted to $12.4 billion in 2012.¹⁹ The withdrawal of the FDI could therefore endanger its economic stability.

Finally, experts are critical of the devaluation of Turkish lira. Following the corruption scandals, the currency fell to a record low of 2.1886 against the dollar which has been the lowest since 1981.²⁰

[...]

¹ cp. Australian Government (2013)

² cp. Cavusgil et al. (2008), P. 270sqq.

³ cp. TBMM The Grand National Assembly of Turkey (2013)

⁴ cp. European Commission (2013)

⁵ cp. BBC News (2006)

⁶ cp. European Union (2013)

⁷ cp. Invest in Turkey (2013a)

⁸ cp. The Telegraph (2007)

⁹ cp. Australian Government (2013)

¹⁰ cp. CIA - The World Factbook (2013a)

¹¹ cp. Statista - The Statistic Portal (2013a)

¹² cp. Statista - The Statistic Portal (2013b)

¹³ cp. Hill international (2013)

¹⁴ cp. CIA - The World Factbook (2013c)

¹⁵ cp. Hill international (2013)

¹⁶ cp. Statista - The Statistic Portal (2013c)

¹⁷ cp. Statista - The Statistic Portal (2013d)

¹⁸ cp. Index mundi (2013)

¹⁹ cp. Yased - International Investors Association (2012)

²⁰ cp. Gokoluk (2014)