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. This will result from less abundant foreign capital inflows and slower domestic credit growth.

  • Political uncertainty and social tensions will rise in the run up to general elections in 2015, further weighing on business and consumer confidence.

  • The government maintains a conservative fiscal policy with healthy budget and debt dynamics. However, recent populist policy initiatives lead us to question the government's long-term commitment to conservative fiscal management.

  • While the government's debt load is low by regional standards, the private sector's rampant external borrowing in previous years has greatly increased macroeconomic risks.

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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 labour force and limited participation, particularly among females. 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 and provide additional training for Turkish employees, which entails additional costs and bureaucratic obstacles. Nevertheless, for businesses willing to...

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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...

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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 having a relatively open trade and investment environment, and welcoming foreign direct investment (FDI) in almost all sectors of the domestic economy, Turkey underperforms in the BMI Trade and Investment Risk Index. This is largely due to high levels of corporation tax, declining exports and curtailed press freedom. These are the principal drags on Turkey's score of 58.2 out of 100 for Trade and Investment Risk, which places the country 15th in Emerging Europe, between Romania and Serbia.

Turkey performs most strongly on the Legal Risks pillar of our Trade and Investment Risk Index. The country's score here is boosted by comprehensive intellectual property rights (IPR) legislation for financial assets, which increases the country's...

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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 see upside potential in the livestock sector, as the government's supply of discounted credit has aided growth in recent years. We see some growth potential for the grain, dairy and rice sectors and production in these sectors will recover in 2015/16 following 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 1% y-o-y for the first eleven months of 2014, to 1,049,852 units.

BMI maintains a bullish view on the country's autos exports outlook following an increase in vehicle exports in 11M14 of 5% y-o-y, to 802,872. 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.

Despite the growth in passenger car exports, CV exports remain weak, and we expect this segment to continue to register declines over the full year.

Total vehicle sales in Turkey in 11M14 declined 14% y-o-y, to 653,490 units....

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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 considered to have a strong medium-term growth outlook, as a convergence of broad based income growth, globally declining device prices, improvements to supporting infrastructure and expanded domestic production drive market development. However, there is significant downside to our core scenario as Turkey continues to be among the European markets most exposed to downside risk. For instance, Turkey continues to be dependent on external financing, which leaves domestic credit growth exposed to international sentiment and this is a particular concern given the importance of credit as a driver of Turkey's economy. Meanwhile, there is also...

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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...

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Food & Drink

Turkey Food & Drink

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BMI View: Although abundant global liquidity and the collapse in oil prices since June 2014 have bolstered Turkey's short-term economic outlook, more balanced growth relative to the past decade will continue, spearheaded by the decline in consumption expenditure. We forecast private consumption to grow by 1.7% in 2015, from 0.8% in 2014. Over the next few years, much slower consumer credit growth will cap potential growth in private consumption due to both supply and demand-side constraints including higher lending rates, subdued consumer confidence and government mandated restrictions on unsecured lending.

That said, we do not believe food consumption growth in Turkey will be drastically affected. We hold this view due to the fact that the slowdown in private final consumption in Turkey will be fuelled by the decline in credit purchases...

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Freight Transport

Turkey Freight Transport

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Following a year in which BMI saw freight volumes steadily increasing in Turkey, 2015 will signal further growth across the whole of the freight transport sector in line with our macroeconomic forecasts for the country.

Total trade is projected to pick up with our Country Risk desk forecasting a y-o-y increase of 5.0% in 2015 following an estimated growth of 3.25% in 2014.

Road freight will continue to dominate the sector, projected to grow by 5% in 2015. The mode has made a prompt recovery from the downturn and enjoys the benefits of not having to make any reductions in road haulage volumes, such as those pledged by the neighbouring EU.

Growth in rail freight volumes will continue to be helped by the Marmaray rail tunnel under the Bosphorus Strait, which was opened in 2013.

The throughput at the Port of Ambarli, one of Turkey's largest ports, is set...

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Information Technology

Turkey Information Technology

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BMI View: Our core scenario for Turkey is bullish over the medium-term as a convergence of income growth, declining device prices, inward investment and domestic modernisation initiatives drive demand growth. Turkey has seen foreign investment in ICT rise over the last three years and it is increasingly being viewed as a regional hub with a strategic geographical location. Meanwhile, the government will also be a positive influence on this sector through a supportive policy umbrella and its goals for Vision 2023. However, there exists significant downside risk from both the vulnerability of the economy to external...

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Infrastructure

Turkey Infrastructure

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BMI View : Turkey's drive to increase the private sector's presence in the infrastructure sector has gathered pace in early 2015, in line with our view that despite short-term headwinds, Turkey presents an attractive long-term market. Financing risks have grown over the past year, particularly in light of a depreciating currency and we are monitoring political risks in the form of President Erdogan's growing grip on power.

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 4.7%.

Key Forecasts And Developments

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Insurance

Turkey Insurance

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BMI View: Turkey's insurance sector is unlikely to realise its full potential until the structural impediments to the growth of life insurance are removed. Downwards pressure on prices for motor vehicle insurance is likely to be a challenge for much of the forecast period as well.

Along with Colombia, Mexico, Thailand and Indonesia, Turkey stands out globally as a major emerging market whose insurance sector is already large in absolute terms and which should achieve superior growth rates over the coming five years. Many of the leading companies have a presence in the non-life segment, the life segment and the pensions sub-sector. The leaders themselves are either affiliates of the main banking groups in Turkey (TC Ziraat Bank, Garanti Bank, Is Bank, Akbank and Vakifbank) or subsidiaries/associates of major multi-national companies. These two...

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Medical Devices

Turkey Medical Devices

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BMI Industry View: The Turkish medical device market is expected 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 Bulgaria. The...

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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...

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Mining

Turkey Mining

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BMI View:  We expect to see strong growth in the mining sector of the Middle East and North Africa over the coming years. 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 negotiations to continue and for limited sanctions relief to be rolled over until 2015. This will benefit the mining sector as it is one of the beneficiaries of an easing of sanctions. On the upside, if negotiations are successful (which we currently give a...

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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 by 2023. With more...

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Oil & Gas

Turkey Oil & Gas

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Manufacturing Sector Will Remain Main Driver Of Growth

A main driver of stronger real GDP growth in Mexico in the coming years will be robust manufacturing sector output. The country's manufacturing sector, with an estimated value of USD12.6bn in 2013, accounts for 16.6% of GDP. Manufacturing output has averaged annual real growth of 2.0% over the last five years, above Mexico's average real GDP growth of 1.9% over the same period. We expect manufacturing to remain an outperforming sector in Mexico in the coming years, driven by ease of access to a recovering US consumer market. The sector was negatively affected by poor weather in the US earlier this year, but improving manufacturing sector confidence ( see chart below) suggests that a sustained recovery will take place in the coming quarters.

Improving Confidence Points To Sustained Recovery
Mexico...

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Petrochemicals

Turkey Petrochemicals

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BMI View: The fundamentals of Turkey's petrochemicals market (a growing population, the privatisation drive and a thriving role as an energy and transport hub) will keep the market on the watch list for investors, particularly in relation to opportunities in the polyvinyl chloride (PVC) and construction polymers market.

The country's largest petrochemicals producer, Petkim, expanded its ethylene and purified terephthalic acid (PTA) capacities increased by 80,000 tonnes per annum (tpa) and 70,000tpa respectively. This should boost production in 2015, following a subdued year in 2014 when chemical production grew by around 4% in 2014 while plastic and rubber products rose 3.5%. The country should benefit from cheaper naphtha prices, although low consumption growth has caused a drop in product prices on the...

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Pharmaceuticals & Healthcare

Turkey Pharmaceuticals & Healthcare

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BMI View:  Despite a challenging pricing and reimbursement situation compounded by currency uncertainty, BMI still believes the Turkish pharmaceutical market is an attractive long-term prospect as higher year-on-year growth rates will return from 2015. 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...

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Power

Turkey Power

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BMI View: This quarter we have extended our forecast to 2024. This notwithstanding, we maintain our view that Turkey's position in the region as a key power market over the coming decade will get increasingly more important, accounting for nearly one-fifth of the CEE's total capacity by 2024. We expect power demand in Turkey to be robust over the coming 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...

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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: Turkey will remain committed to its renewable energy expansion plans in order to reduce fuel import costs at a time when power consumption in the country is set to surge and the lira continues to depreciate. Wind will drive the renewables expansion; but we highlight that the upsides are mounting for growth in solar capacity.

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 energy expansion over the last decade, and across both Western Europe and Central and Eastern Europe (CEE), we see Turkey emerging as a key market; with strong project pipelines, robust growth...

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Retail

Turkey Retail

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BMI View: We retain a positive growth outlook for the Turkish retail sector in 2015 and beyond. Total household spending will be spurred by the growth of the economy and rising income of consumers. We anticipate that 2015 and the next four years will mark the expansion of the largest retail chains into the country's periphery as well as the further intensification of competition in the cities.

Turkey continues to emerge as a centre of influence and economic gravity in South Eastern Europe. However, it is set to face several external challenges in 2015. The political and economic crisis in Russia is affecting most of the country's trade partners. According to the Turkish Statistical Institute, Russia is Turkey's third largest origin of imports, with the total value of USD2.3bn of goods bought by Turkish companies and...

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Shipping

Turkey Shipping

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Another Year of Growth In Turkey's Main Ports

We are forecasting good single-digit percentage growth rates in Turkey's main ports in 2015, although the largest, the Port of Izmir, held back by capacity constraints, will see somewhat lower growth, in the 2%-3% range. The strongest increases will be experienced at the ports of Ambarli and Haydarpasa.

Turkey's economic outlook was encouraging at the beginning of 2015. Two developments augured well. First, monetary stimulus in Japan and Europe, despite expectations of a tightening stance by the US Federal Reserve, was positive for Turkey, given that its externally-leveraged economy is very sensitive to changes in global liquidity conditions. Second, falling oil prices - down by 40% in the second half of 2014, promised to help lower the domestic inflation rate and more importantly, boost net exports. Bearing these factors in mind, BMI is forecasting...

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Telecommunications

Turkey Telecommunications

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BMI View: The Turkish telecommunications market has displayed strong growth over the last few years; however, there was increased downside in 2014 arising from the interference of the government with bans on both Twitter and YouTube in early 2014, as well as pressure on operator financial performance. Despite this, we believe that the mobile market will expand in 2014; strong growth will also come from pay-TV subscriptions as well as from fiber and cable broadband expansion. The fixed-line market is more volatile, with IP voice and messaging substitution beginning to take hold and...

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Tourism

Turkey Tourism

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Turkey's tourism market shows signs of healthy growth, with robust increases in arrivals forecast for the 2015-2018 period. This is likely to lead to a range of other positive developments for key market indicators, particularly hotel numbers. Alongside this investment, the government and private sector are investing heavily in transport infrastructure.

We expect to see total tourist arrivals increase by 6.5mn between 2015 and 2018, taking the number of journeys to Turkey in 2018 to 44.9mn, a significant increase on previous forecasts. This increase is due to improving economic growth and increased consumer spending across most of Turkey's key source markets, continued investment in tourism and transport infrastructure in the country, and the prospect of effective marketing of Turkey's many tourism assets. Arrivals may also be boosted by travellers avoiding other unstable destinations in the Middle East and North Africa due to security...

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Water

Turkey Water

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BMI View: We believe the ongoing drought, the reduction of the water resources, and the rising demand for thermal electricity generation pose serious risks to the Turkish water sector. Moreover, continued regional tensions between Turkey and its neighbours concerning the former's extensive dam construction and the latter's calls to slow or even halt construction of many of Turkey's water infrastructure projects will have a long-term impact on the sector.

Overall, Turkey has an open trade and investment environment and actively encourages foreign investment however waning investor interest is acting as a drag on FDI levels Turkey has seen a sharp drop-off in FDI into the water sector since 2012. In 2010 it had the third largest level of FDI into water collection, distribution...

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