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

  • Although we view positively Turkey's long-term growth outlook, we expect slower, more balanced growth in the next decade relative to the previous one on the back of less abundant foreign capital inflows and slower domestic credit growth.

  • Political uncertainty will be elevated following June 2015 general elections, weighing on business and consumer confidence. The ruling Justice and Development Party (AKP) has lost its single party majority for the first time in 13 years, and it is unclear whether a viable coalition can emerge, making fresh elections a distinct possibility in the coming quarters.

  • 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.

  • ...

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Turkey Operational Risk Coverage (9)

Turkey Operational Risk

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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 37.52 out of 100 in our overall Crime and Security Risk Index, placing it 21st out of 31 countries in the Emerging Europe region.

The most pronounced crime and...

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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 (25)

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. Grain, dairy and rice production will recover in the 2015/16 season following the drought in 2014.

Agribusiness Market Value
BMI Market Value By Commodity (2011-2019)
...

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Autos

Turkey Autos

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Sharp declines in commercial vehicle manufacturing weighed on total output in Turkey, despite sustained gains in passenger car manufacturing, resulting in vehicle output growth of just 4% in 2014, to 1,170,445 units.

BMI maintains a bullish view on the country's autos exports outlook. This reflects the European passenger car market's resurgence from a period of marked declines, and sustained currency weakness which makes Turkish exports more competitive. Furthermore, a number of auto manufacturers have invested in the country for export.

Total vehicle sales in Turkey in 2014 declined 9.5%, to 804,467 units. Generally, sales in both the passenger car and commercial vehicle (CV) segments have remained weak over the year. BMI forecasts a 2.8% drop in total vehicle sales in 2015.

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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: Our Country Risk team's outlook for lira depreciation against the US dollar in 2015, and to a lesser extent over the medium term, resulted in a downgrade to the consumer electronics spending forecast in the Q4 update. We now envisage a contraction in US dollar terms in 2015, before a recovery from 2016 as the market moves back towards its medium-term potential base on a convergence of broad-based income growth, globally declining device prices, improvements to supporting infrastructure and expanded domestic production drive market development. We expect medium-term strengthening of the growth dynamic, but also highlight downside risk in several areas. Turkey continues to be dependent on external financing, which leaves domestic credit growth exposed to international...

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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: We have revised down our forecasts for Turkey's real GDP growth to 3.5% for 2015. While abundant global liquidity and the collapse in oil prices since June 2014 have been tailwinds for Turkey's short-term outlook, manufacturing activity has collapsed since the beginning of the year. Meanwhile, consumer confidence also fell to a six-year low in March; we now forecast real private consumption to grow by 1.8% in 2015. Rising unemployment, lira volatility and persistently high inflation remain impediments to stronger consumer spending, while an increasingly tense political backdrop ahead of general elections in June will continue to weigh on sentiment. We do not believe food consumption growth in Turkey will be drastically affected. We hold...

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Freight Transport

Turkey Freight Transport

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BMI View: Over 2015, the freight sector will record growth across the transport modes despite the lacklustre outlook for the economy. The outperforming freight mode in terms of year-on-year (y-o-y) tonnage growth is set to be the air freight sector, which will record growth of 7.3% for the year. The other modes will record smaller increases, with road at 4.1% and rail freight volumes at 3.4% y-o-y. Increases will be driven by solid performances in the pharmaceutical sector and by the country's role as a regional logistics hub.

The Turkish economy will be hurt by the uncertain political landscape, following an inconclusive general election on June 7, in which the ruling Justice and Development Party (AKP)...

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Information Technology

Turkey Information Technology

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BMI View: We downgraded the growth outlook for Turkey's IT market in 2015 in the Q4 update in response to a more bearish lira outlook by our Country Risk team - which we expect to be a drag on growth through the erosion of purchasing power in global markets. Over the medium term however our core scenario for Turkey is bullish. We expect a convergence of income growth, declining device prices, inward investment and domestic private and public sector modernisation initiatives to drive demand growth. However, there exists significant downside risk from both the vulnerability of the economy to shocks due to a reliance on external financing, the growing concerns over the domestic political situation and the potentia...

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Infrastructure

Turkey Infrastructure

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BMI View : Our view that despite short-term headwinds, Turkey presents an attractive market for investors remains in play, although we note those assets which deliver lira denominated returns will face poor profitability due to the ongoing depreciation in the lira against the US dollar. Government guarantees should shore up investor confidence.

On the back of a strong project pipeline, we maintain a healthy construction industry real growth outlook. Average real construction industry growth for the period 2015-2024 is forecast at 4.44%.

Key Forecasts And Developments

  • With nearly USD350bn of...

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Insurance

Turkey Insurance

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BMI View: The expansion of the Turkish insurance sector in USD terms will be hampered, both in 2015 and through the forecast period as a whole, by the general weakness of the TRY. The general prospects for the non-life segment are favourable. Motor vehicle insurers should benefit from the rise in the number of cars on Turkey's roads and from coverage of previously uninsured vehicles. Property insurance should expand thanks to the growth in the number and value of insurable risks. Increasing private health expenditure is good news for the health insurers. Meanwhile, it seems reasonable to look for smaller sub-sectors (such as credit/financial guarantee insurance) to expand even more rapidly than the three largest sub-sectors. Persistent challenges such as the low income levels of many households will continue to retard the development of the life segment.

...

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Medical Devices

Turkey Medical Devices

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BMI Industry View: We expect the Turkish medical device market to grow by a CAGR of 3.4% over the 2013-2018 period, driven by import growth, the expansion of healthcare facilities and rising health expenditure. The market is largely supplied by imports but its reliance on medical devices manufactured outside of the country should reduce if the government is successful in implementing a project that is intended to boost the domestic production of diagnostic medical devices and other medical equipment.

Headline Industry Forecasts

  • In 2013, the Turkish medical device market was estimated at USD2,421.6mn, or USD32 per capita. This total was almost twice the size of the Czech market; in per capita terms, the market was similar to...

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Metals

Turkey Metals

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BMI View: Despite relatively weak growth to be expected over the coming months, the medium-term outlook for Turkey's metals sector remains promising due to strong demand from the domestic construction and autos sectors. Near-term headwinds are likely to include currency weakness making imports of materials more expensive and weak global steel prices squeezing steel-makers' margins. Long-term political risk in Turkey also presents a key downside risk.

Over the medium-term we forecast Turkey's total steel production to grow from 34.7mnt in 2013 to 44.6mnt in 2018. We expect growth to average 5.2% y-o-y over 2014-2018, as we predict a recovery from the negative growth seen during 2013, which was a result of weak...

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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: Lower oil prices are supporting increased consumption of refined fuels and natural gas in Turkey. We expect this to continue while oil prices remain low and the lira stable against the USD. Turkey's longer term production outlook remains weak with mature assets and exploration cutbacks.

Headline Forecasts (Turkey 2013-2019)
2013 2014e 2015f ...

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Petrochemicals

Turkey Petrochemicals

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BMI View: The Turkish petrochemicals market is set for heightened risk as a result of the uncertainties created by the June election result, but the industry will continue to expand along the ambitious goals set out by SOCAR, the Azerbaijani owner of Turkish producer Petkim.

BMI is forecasting GDP growth of 2.8% and 3.5% in Turkey in 2015 and 2016 respectively with a period of slower growth over the medium term. The June 7 general election has increased short-term political risks and policy uncertainty, which will undermine potential growth in the coming quarters. Nevertheless, the Turkish petrochemicals market should be supported by the strengthening, export-oriented automotive industry. Strong export growth to Europe drove a 15.8% increase in Turkish passenger car production in...

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Pharmaceuticals & Healthcare

Turkey Pharmaceuticals & Healthcare

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BMI View: Turkey's pharmaceutical and healthcare markets will continue to grow over the long term due to underlying fundamentals driving demand for healthcare services, its population dynamics, increasing urban migration and the burden of disease in the country. In contrast to European markets where manufacturers can expect to achieve higher prices, but with a stagnant growth outlook, Turkey offers strong growth potential if drugmakers are able to accept prices that are considerably below the European average and turn a profit on the low margins available.

Headline Expenditure Projections

  • Pharmaceuticals: TRY18.72bn (USD8.56bn) in 2014 to TRY20.66bn (USD7.80bn) in 2015; +10.3% in local currency and -8.9% US dollar terms.

  • ...

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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: Turkey's commercial real estate sector has established itself as one of the strongest performers in Europe with robust levels of consumer-led growth supporting significant expansion in the market over the past few years. The retail and office markets have been the recipient of growing levels of international interest, with the shopping mall segment in particular undergo rapid development. However, the industrial sub-sector has remained lacklustre as the export market has come under increasing pressure.

The Q115 Turkey real estate report focuses on the country's two principal commercial real estate markets of Istanbul and Ankara and monitors developments and performance of the office, retail and industrial segments in both cities. The key theme we are witnessing across the sector is growth, with the country's robust economic expansion continuing to fuel demand for commercial space in...

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Renewables

Turkey Renewables

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BMI View: A heavy reliance on gas-imports, coupled with a weakening currency, is providing tailwinds for Turkey's ambitious renewable energy expansion plans. With favourable conditions for wind, solar and geothermal power, renewable energy will present an increasingly attractive option for Turkey to enhance its energy security and cut fuel import costs, aligning with our long-held view that the country is becoming a key renewables market in the region.

Despite the dominance of thermal generated electricity, Turkey's renewables sector presents significant growth potential across most technologies, including wind, geothermal and solar power. Turkey has made impressive progress with its renewable...

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Retail

Turkey Retail

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BMI View: Turkey has been struggling to live up to its status as a major emerging global market in the past two years. However, its retail market is set to recover and return to a growth trajectory as new legislation, recovery of the country's main trade partners and growth of household income will expand growth opportunities in the highly promising Turkish retail sector.

The Turkish economy has underperformed in the last two years. The growth of the country's real GDP slowed to 2.9% in 2014 and is forecast to fall to 2.8% this year. With these growth rates Turkey is facing problems more characteristic to mature EU economies rather than the world's most promising emerging retail markets. Unemployment rate in Turkey reached its four-...

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Shipping

Turkey Shipping

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BMI View: In 2015, annual growth across Turkey's main ports is set to be healthy, with the port of Ambarli forecast to see year-on-year (y-o-y) tonnage growth of 7.30%, while box throughput at the port will come in at a lower rate of 6.44%. Meanwhile, the growth picture at the port of Haydarpasa will be equally impressive with tonnage forecast to increase by 8.22% y-o-y (the outperformer in 2015) and container throughput by 3.90% in 2015. The port of Izmir is not set to see similar levels of growth to Ambarli and Haydarpasa (2.25% and 2.30% in tonnage and box terms, respectively). The growth at Turkish ports is predicated on rising total trade growth in real terms this year (4.85%).

The trade picture in Turkey has some pertinent potential bright spots on the horizon, which should provide a shot in the arm to the country's shipping industry. Peru is...

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Telecommunications

Turkey Telecommunications

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BMI View: Turkish telecommunication market is following the same trend of rapid growth as its economy, with higher value services such as fibre-optic broadband and 3G/4G services adding upside to the operator's revenues. However, the Prime Minister's comments that Turkey should stop developing 4G services and skip straight to 5G add downside to our outlook. This could lead BMI to downgrade its LTE outlook should the 4G spectrum auctions postponed to August 2015 be cancelled or delayed again.

Key Data

  • Data services continue to grow through 3G uptake, data from telecoms authority ICTA suggests that 3G services uptake increased 16.5% y-o-y to Q1 2015 from 51mn to 59.4mn

  • Fibre internet has shown similarly strong growth with subscriptions up 18.5%...

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Tourism

Turkey Tourism

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BMI View: In spite of the risk to tourist arrival figures arising from the pronounced drop in Russian tourist visits owing to their economic downturn on the one hand, and the uptick in terrorist threats in Turkey acting as a particular deterrent to Western European tourists on the other, we believe that the tourism sector will still be one of the largest contributors to the economy over 2015.

The tourism market in Turkey is large, but expected to have limited growth over the next few years, as the high natural assets and attractive city breaks are off-set by high political tensions both domestically and in the region in general. Overall we see the tourism market in Turkey as an area of high risk. However, the country does have a wide array of source markets which should protect it from asymmetric shocks, and large international hotel players have also been investing in the country in recent...

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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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