Turkey has a strategic geographic location and an open, and increasingly liberal, trade and investment climate. A young and rapidly growing population provides a key ingredient for robust long-term growth potential. Turkey is still a major convergence play for investors, despite brewing political risks and a lack of progress in the EU accession process. While Turkey's public debt load is low by regional standards, the private sector's rampant external borrowing in previous years has greatly increased macroeconomic vulnerabilities.

We keep our clients informed of the latest market moves and political developments as part of our 'top-down' and 'bottom-up' perspective in Turkey. Clients also benefit from in-depth analysis on 25 of the country’s most important industries. We provide interactive data and forecasting alongside detailed and risk-assessed analysis from our expert teams. We aim to keep you ahead of the curve, so you can do business with ease in Turkey.

Country Risk

Turkey Country Risk

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Core Views

  • Relative to the past decade, we expect slower, more balanced growth in the next decade on the back of less abundant foreign capital inflows and slower domestic credit growth.

  • Turkey faces a challenging foreign policy environment amidst heightened regional tensions and rising external security risks as the government attempts to cement its role as an economic and political power in the region.

  • With the Justice and Development Party (AKP) regaining its parliamentary majority in the November 2015 general election, Turkey will operate under a de-facto executive presidential system, with negative implications for institutional quality and government checks and balances.

  • A collapse of the government's ceasefire with the Kurdish separatist PKK is a major step back for the country, weighing on growth potential.

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Turkey Operational Risk Coverage (9)

Turkey Operational Risk

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BMI View: Turkey's labour market inhibits the business environment due to the low skill level of the workforce and limited participation, particularly among females. This means that Turkey is currently unable to harness its favourable demographic situation by turning its large, young population into skilled workers. Consequently, businesses face a heightened need to import foreign professionals and provide additional training for Turkish employees, which entails additional costs and bureaucratic obstacles. Nevertheless, for businesses willing to overcome these risks, Turkey offers one of the largest and most highly...

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Turkey Crime & Security

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BMI View: Turkey is generally a safe place for foreign business travellers, tourists and expatriates. Although Turkey's overall Crime And Security Risk score is depressed by a relatively high terrorism threat and tense relations with its neighbours, these risks do not pose a great threat to foreign businesses. Turkey scores 39.2 out of 100 in our overall Crime and Security Risk Index, placing it 20th out of 29 countries in the Emerging Europe region.

The most pronounced crime and security risk to business operations in Turkey is from terrorism. Turkey's domestic terror groups...

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Turkey Labour Market

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Turkey's labour market inhibits the business environment due to a general lack of education among the workforce and low levels of participation in the formal labour market, particularly female participation. In addition, labour force participation is yet to recover its pre-2008 crisis peak. This means that Turkey is currently unable to harness its favourable demographic situation by turning its large, young population into skilled-workers. Consequently, businesses face a heightened need to import foreign professionals, which increases risks of additional costs and bureaucratic obstacles. Considering these factors, BMI awards Turkey a score of 55.3 out of 100 for overall Labour Market Risk. This equates to 18 th place out of the 30 countries in Emerging Europe, between Azerbaijan and Croatia.

Risks associated with the availability of labour are pronounced in Turkey. At 29.4%, Turkey has the lowest rate of...

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Turkey Logistics

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BMI View: Turkey offers investors a more highly developed logistics network than most of its peers in the Emerging Europe region. The country's international trade links and port facilities are highly developed, facilitating efficient supply chains for the country's key manufactured goods exports. Investment in inland transportation options will enable the network to cope with growing trade volumes. Consequently, Turkey is ranked third out of 30 states in Emerging Europe in the BMI Logistics Risk Index, with a score of 63.1 out of 100. Although the utilities network offers relatively good reliability, the reliance on fuel imports exposes electricity and diesel supplies to disruption due to geopolitical risks. In addition, water scarcity is becoming an increasingly pressing issue, and will deter investment in water-intensive industries.

Investor sentiment towards Turkey has improved...

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Turkey Trade & Investment

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BMI View: Despite offering an open trade and investment regime and welcoming foreign direct investment (FDI) in almost all sectors of the domestic economy, a number of risks continue to cloud Turkey's operating environment. This is largely due to a moderate tax burden, stalled bureaucratic reforms and lingering issues over corruption at all tiers of government. Investors may be willing to overlook these concerns due to the country's considerable investment opportunities, generous fiscal incentives and sophisticated financial markets. Overall, Turkey is placed among the more attractive investment destinations...

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Turkey Industry Coverage (24)

Agribusiness

Turkey Agribusiness

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BMI View: We favour the sugar sector in Turkey because of the strong growth potential of the country's confectionery industry and our belief that large changes to the country's sugar production quotas are likely to occur in the coming years. We continue to see resilient growth in the livestock sector on the back of continued government support. Grains and rice production will recover in the 2016 season following the drought seen in 2014.

Agribusiness Market Value
BMI Market Value By Commodity (2012-2020)
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Autos

Turkey Autos

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BMI View: Lira weakness will weigh on vehicle sales by forcing automakers to raise prices on imported vehicles, which account for the majority of new vehicles sold in the country.

Passenger Car & Light Commercial Vehicle Sales
(2013-2019)
f = BMI forecast. Source: Automotive Manufacturers Association (OSD), BMI

Key Views

  • Vehicle sales made on credit will suffer over 2016 as interest rates on commercial loans and auto loans rise.

  • Sales of...

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Commercial Banking

Turkey Commercial Banking

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Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

Turkey Consumer Electronics

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BMI View : Turkey's consumer electronics market is estimated to have contracted by almost 10% in US dollar terms in 2015 as the lira depreciated sharply against the dollar, while deferred purchases due to political unrest were an additional drag. We forecast another year of contraction in 2016 as depreciation continues, with the impact of any global economic crises presenting additional downside due to Turkey's economic fragilities. In contrast to this challenging short-term outlook, we expect a return to growth from 2017 as the lira stabilises, which should return the market to a growth trajectory based on rising incomes and vendors tapping low penetration rate opportunities. We forecast a CAGR of 1.0% over 2016-2020 to...

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Defence & Security

Turkey Defence & Security

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BMI View: On the whole, Turkey is one of the more stable countries in the Near East region. That said, the instability in its surrounding neighbourhood is affecting Turkey's regional interests. BMI thinks that international dynamics are bringing Turkey to roll back somewhat its Syrian policy, notably through modification of its previous support of extremist groups in the region. Turkey is continuing its efforts to boost its indigenous defence production capacity are continuing via investments, joint ventures with international companies. From the BMI perspective, Turkey could serve as a potential market to opt for cheaper offshore production processes, although caution is necessary.

We expect that Turkey will spend up to USD20.6bn on defence in 2014. Up to and including 2019, we expect Turkey to spend an average of USD28.4bn on defence annually. We anticipate that Turkey...

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Food & Drink

Turkey Food & Drink

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BMI View: Effective in January 2016, the government will increase the minimum wage which will have a significant impact on the sector over the next two years. Given that around 5mn workers - around 15-20% of the country's labour force - are paid the minimum wage, rising purchasing power for low-income households will bolster sector formalisation of mass grocery retail and encourage greater spending on food and drink products. The country had previously been facing some short-term headwinds resulting in declining consumer confidence but this move should improve our outlook.

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Freight Transport

Turkey Freight Transport

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BMI View: Politics will play on the Turkish freight sector in both positive and negative ways in 2016, as sanctions imposed by Russia following the Turks' downing of their aircraft will limit trade in fruit and vegetables, while the re-emergence of Iran once sanctions have been removed will have a positive influence on Turkish trade volumes. A relatively upbeat outlook for economic growth will bolster trade volumes and we are positive across the country's freight modes.

A decisive victory for Turkey's Justice and Development Party (AKP) in the November 1 snap election has been positive for the short-term growth outlook, and this will have a positive influence on trade and freight volume growth. Reduced political uncertainty is reflected in a strong bounce in the November consumer and business confidence, which will support consumption and investment in the coming months...

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Information Technology

Turkey Information Technology

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BMI View: Turkey's IT market growth trajectory took a downturn in 2015 when a combination of lira depreciation and political unrest resulted in deferred purchases and heightened price sensitivity. Based on our forecast for economic conditions to remain challenging in 2016 we expect the IT market will only strengthen marginally from 2015, and contract again in US dollar terms due to lira depreciation. The medium term outlook is however brighter, particularly from 2018, when we expect IT demand growth to resume on a trajectory determined by a convergence of income growth, declining device prices, inward investment and domestic private and public sector modernisation initiatives predicted to drive demand growth. We forecast total IT spending will grow at a CAGR of 8.6% 2016-2020 to a total of TRY24.4bn in 2020.

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Infrastructure

Turkey Infrastructure

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BMI View : Factors which were outlined last quarter such as currency depreciation, tightening credit and political risk remain elevated and over H215 security risks have also emerged - as such we have downgraded our 2016 and 2017 real growth forecasts for the Turkish construction sector. The government will remain committed to infrastructure and the residential sector, but in the face of poor economic sentiment, the non-residential sector will be hardest hit over 2016.

Latest Updates And Structural Trends

  • We have downgraded our construction industry value real growth forecasts for 2016 and 2017, now 3.2 and 4.3% y-o-y respectively....

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Insurance

Turkey Insurance

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BMI View: Turkey is among the more dynamic insurance markets we monitor, with the sector offering substantial long-term potential and substantial opportunities for new entrants and investors. While certain lines, namely the compulsory motor vehicle and property segments, are well established, many areas of the market remain underdeveloped. The health and personal accident insurance lines, in particular, should be well placed to grow over the forecast period and will be supported by a robust economy and growth in households incomes and consumer spending. Relatively fragmented at present, we expect to see increased consolidation and transactional activity over the next few years as the larger players expand their presence and foreign insurers look to gain a foothold in the market.

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Headline Insurance Forecasts (Turkey 2013-2020)

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Medical Devices

Turkey Medical Devices

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BMI View: We expect the Turkish medical device market to fall by a CAGR of 0.7% in US dollar terms over the 2014-2019 period, although growth will be stronger, at 6.3%, in local currency terms. The expansion of healthcare facilities is helping to drive market growth but this will be tempered by poor economic performance. Increasing social tensions and security risks are negatively affecting the economy and Russia has imposed a number of economic sanctions against Turkey.

Projected Medical Device Market, 2014-2019...

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Metals

Turkey Metals

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BMI View: As one of Europe's largest steel industries, Turkey has borne the brunt of the current steel oversupply on the international market and continued drop in prices. Steel exports faced particular challenges over 2015 as they have come up against rising competition from Chinese supplier. However, a relatively favourable domestic demand scenario should ensure positive growth in Turkish steel output over 2016, which should carry through to the end of our forecast period.

Though remaining among the leading centres for steel production in Europe, Turkey's steel makers will continue to face ongoing challenges over the coming months as narrowing export opportunities and increased competition from overseas producers weigh on crude steel prices and output. We expect Turkey's total crude steel production to have fallen by 6.5% year-on-year (y-o-y)...

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Mining

Turkey Mining

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BMI View: Turkey's mining industry is set to be on the radar of foreign investors in the years to come as the government has undertaken efforts to open up the sector, paving the way for forthcoming investment. The gold sector will attract the largest share of investment as several companies bring their projects into production. Nevertheless, Turkey's extremely poor mining safety record and weak global commodity prices will limit the industry's otherwise healthy growth.

We believe investment into Turkey's mining sector will be forthcoming over the coming years as Prime Minister Tayyip Erdogan pledged to transform the country into one of the 10 biggest economies...

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Turkey Mining

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BMI View: The mining sector of the Middle East and North Africa will see strong growth in over the coming years, especially given easing sanctions on Iran. With low base effects, governmental will to increase non-oil revenues and significant resources it appears the region is set for strong growth. We highlight Turkey and Northern Iraq as key areas for growth. That said, the region will remain peripheral in the global mining sector as it continues to underperform due to political instability in much of the region.

The key issue in the Middle East's mining sector presently is Iran's ongoing negotiations with Western powers. Our core scenario is for sanctions to be eased from Q116 which will have be a game changer for the country's beleaguered mining industry...

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Oil & Gas

Turkey Oil & Gas

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BMI View: Turkey will continue to increase its consumption of crude oil, natural gas and refined fuels throughout our forecast period, which goes as far as 2020, remaining a net importer of all three. Positive exploration results in the Thrace Basin present upside risk to our gas production forecast.

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Headline Forecasts (Turkey 2014-2020)
2014 2015e 2016f 2017f

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Petrochemicals

Turkey Petrochemicals

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Political risks could undermine the performance of Turkey's petrochemicals sector in 2016, following a year of volatile growth in 2015. With chemicals output up 2.1% and rubber and plastic rising 0.7% in the January-August period, some segments are facing capacity constraints while others are stalling due to market sector weaknesses.

Turkish petrochemicals consumption has two main sources: products used in the construction industry and intermediate goods for export-oriented sectors such as the automotive industry. A transition to slower, more balanced growth relative to the past decade will continue. Turkey's rapidly growing population will necessitate continued high levels of housing development, which should drive demand for construction-related plastic products. As an intermediate sector supplying industry, the Turkish petrochemicals industry is insufficient to cover all domestic demand, so imports will continue to track...

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Pharmaceuticals & Healthcare

Turkey Pharmaceuticals & Healthcare

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BMI View: A strong health care sector and more certain drug pricing policy will drive pharmaceutical sales in value terms over the next 10 years and improve the commercial opportunities for pharmaceutical manufacturers. Despite this positive development, cost containment measures will remain a risk, as will the political situation with neighbouring Syria and nearby Russia.

Headline Expenditure Projections

  • Pharmaceuticals: TRY18.72bn (USD8.56bn) in 2014 to TRY20.81bn (USD7.38bn) in 2015; +11.1% in local currency and -13.8% US dollar terms. Forecast unchanged in local currency and down in US dollars compared with previous quarter due to revised exchange rate expectations.

    ...

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Power

Turkey Power

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BMI View: We continue to expect Turkey to remain the most attractive power market in the CEE region this quarter. We foresee power demand in Turkey to be robust over the next decade, given the high levels of investment being channelled into its power sector, the country's capacity expansion plans and its improving economic outlook. There is also considerable political backing for power sector expansion as the government continues to strive for greater energy security and to lower the country's heavy reliance on imports of...

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Real Estate

Turkey Real Estate

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BMI View: A tentatively improving economy and established banking sector should support growth in the commercial real estate industry in the medium term. However, in the short term the outlook is marred by security concerns, both domestically and regionally, and Russian trade sanctions, which will all dampen investor and consumer confidence.

The government's economic reform agenda, as well as a stable banking sector, provides a good backdrop for commercial real estate growth. However, domestic political issues and regional tensions have raised uncertainty about business and consumer confidence. Geopolitical turmoil from Islamic State (IS) and Russain sanctions, expected to lose the country some USD3.1bn worth of trade in 2016, will weigh in on Turkey's economic recovery. We forecast real GDP growth of 2.9% in 2016, down from 3.3% in 2015. However, the commercial real estate...

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Renewables

Turkey Renewables

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BMI View: Turkey will continue to be a key hotspot for renewables in Europe, due to strong government support in form of ambitious 2023 targets and financial incentives for new capacity developments. While short-term political uncertainty and economic volatility could deter some investors, the government will remain firmly behind renewables expansion plans in order to cut fuel import costs and enhance energy security - reinforcing our long-held view that the country will remain a key global renewables market.

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Turkey - Headline Renewables Forecasts

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Retail

Turkey Retail

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BMI View: While Turkey's economy has underperformed over the past few years, the recently elected AK Party has vowed to initiate a series of reforms to boost the economy and ensure the country retains its reputation as one of the world's most important economies. Furthermore we believe that new legislation, a recovery of the country's main trade partners as well as steady growth of household income will help generate new growth opportunities in the highly promising Turkish retail sector over the course of our forecast period.

While Turkey is expected rank as the fastest-growing economy among Organization for Economic Cooperation and Development (OECD) member countries in 2017, the economy has distantly underperformed in the past few years. The growth of the country's real...

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Telecommunications

Turkey Telecommunications

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BMI View: The Turkish telecoms market will be driven by advanced technologies, with the launch of LTE services in April 2016 accompanying the development of fibre networks. This will grow the demand for greater usage, enabling operators to monetise their investments, as well as proposing new types of offers, such as convergence, as the market continues its maturation.

Key Data

  • The mobile market reached 72.76mn subscriptions in September 2015, as all three operators reported growth and a higher percentage of postpaid customers.

  • The demand for data and the growing share of contract users has driven ARPU, which has increased for all three players, reaching TRY26.1 for Turkcell, TRY259.9 for Vodafone, and TRY24.6 for ...

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Tourism

Turkey Tourism

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BMI View: Turkey's tourism industry is facing difficult issues currently, with regional insecurity and domestic issues affecting tourism into the country and the image of Turkey as a destination. Whilst there are some positive drivers (such as competition in the European airline industry driving down prices) helping boost the overall level of inbound arrivals, they are not sufficient to maintain the high levels of growth seen in the previous few years. One of the most troubling issues facing Turkey is the deteriorating relationship with Russia.

Following the shooting down of a Russian plane in Turkish airspace there has been a ban of selling package trips to Turkey from Russia. As Russia is the country's second largest source market, this could have devastating effects on the tourism industry, especially in areas with a higher propensity to attract Russian tourists (such as...

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Water

Turkey Water

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BMI View: The country's endemic water pollution issues, particularly from industrial pollutants, highlight the need for further investment into this sector. Additional legislation is also needed, and more rigorously enforced penalties.

Overall, we forecast ground water extraction to increase steadily over the next five years, however this growth will largely be catered to b y surface water sources. This is due to the combination of the fact that the country's ground water reserves are declining, and the number of dams and desalination projects are increasing available surface water. This latter factor is in turn supporting our expectations of moderate growth in consumption (both mains and non mains) as domestic and industrial users alike capitalise on the increase in water availability in many regions. Moreover, additional investment is boosting wastewater...

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