By Lourdene Hurh

In 1995, Turkey was identified by the US Department of Commerce as one of 10 "Big Emerging Markets" (BEMs). There are a number of reasons underlying this selection. Turkey is among the most industrialized nations outside of the US, Western Europe and Japan, and its economy (in terms of GNP) is now the 18th largest in the world. It has a rapidly-growing free market economy, and its strategic location provides an excellent base for economic activities throughout Central and Eastern Europe, the Turkish speaking republics of Central Asia, the Gulf and the Middle East. It is the oldest democracy in the region, and the only secular Moslem country in the world. The government has made a commitment to development and growth which is evident in its active and ongoing efforts to liberalize economic policy. 

Following is selected information about the Turkish economy, economic development in Turkey, and Turkey as a market for exports and foreign investment. This information was gathered from the sources cited below as well as from informants within Turkey.

A. Turkish Economy

* Population 63 million (1997) with a growth rate of 1.7%
* Per capita gross national product (GNP) = $US 3,048 (1997)
* Per capita GNP growth rate = 7.2% per year (1997)
* Purchasing power parity = $US 6,647 (1997)
* Note that in Turkey a wide range of economic activities are not recorded for tax evasion and other reasons and therefore are not included in these figures. Total volume of these activities (the underground economy) is estimated to be equal to 40% of the recorded economy.

* Distribution of GNP between sectors (1997)
* Agriculture 16%
* Industry 31%
* Trade 17%
* Other Services 36%
* Turkey is the world's largest producer of hazelnuts, apricots, figs, dried raisins, and eggplant, and the world's second largest producer of pistachios, chickpeas, lentils and peppers. It is the world's fifth largest producer of olives and cotton, and the sixth largest producer of tobacco and grapes.

* The following are the largest industries in Turkey: textiles, food processing, mining, steel, petroleum, construction, lumber, and paper. The fastest growing industries during the previous decade were petrochemical, automotive, plastic, electricity, mining, leather, electronics, ceramic, textile, and car tires.

B. Public Finance

1996 National budget

* Revenues = $US 32.9 billion

The main source of tax revenue is income tax and value added tax. Income tax brackets range from 25 - 75%. Value added tax ranges from10-15% of the goods. Property tax is .3%

* Expenditures = $US 50.8 billion
* 26% - wages and benefits to government employees
* 38% - debt service
* 7.5% - social security
* 14.2% - subsidies for deficits of State Economic Enterprises
* 14.3 % - infrastructure investment

National Debt

* Internal (domestic) debt is $US 30 billion
* external (foreign) total of $US 70,767 billion
* medium to long term- $US 59,231 million,primarily to the World Bank
* short term - $US 20,535 million, primarily commercial loans
* Note that external debt is 42% of GNP, 334% of exports, and 177% of total foreign exchange earnings. Turkey's annual external debt service is 7% of the GNP, and 75% of export earnings.

C. Employment

* Labor force = total of 21.3 million = 36% of population

* 29% are wage earners; 71% are self employed
* Distribution of the labor force (1995)
* Agriculture - 47%, 
* Services 33%,
* Industry 20%
* Unemployment rate = 6.3% (1996)
* Underemployment rate = 6.3% (1996)
* About 1.5 million Turks work abroad
* Countries with the largest number of Turkish workers are Germany, France, Holland, Austria, USA, and Saudi Arabia.

The volume of Turkish workers in Germany has resulted in entrepreneurial activities. Turkish investment in Germany is 7.2 billion DM, while German investment in Turkey is only 1 billion DM.  Turkish entrepreneurs in Germany own 42,000 businesses in 54 different industries employing 186,000 workers, 15% of which are Germans. 1200 Turkish entrepreneurs start new businesses in Germany each year.

Turkish workers pay 80 billion DM in taxes to the German government each year.

Income Distribution

* The top 20% of the population receives 55% of the national income.
* The lowest 20% receives only 5% of the national income.
* The per capita income of the top 5% of the population is $US 22,000.
* The per capita income of the lowest 20% of the population is $US 537.

D. International Trade

Exports and Imports
Turkey has a trade deficit of $US 20 million
Exports = $US 22 billion (1996)

* Textiles and Apparel = 40%
* Steel products = 9%
* Foodstuffs = 20%
The following are the export industries that achieved the highest growth during the past decade: electronics, leather goods, shoes, ceramic, metal goods, electric equipment, car tires, petrochemicals, automotive, and steel.

Largest recipients of Turkish exports:

* Germany 23%
* Russia 6%
* US 7%
* Italy 7%
* Imports = $US 42 billion (1996)
* Machinery = 23%
* Fuels = 13%
* Raw materials = 22%
* Foodstuffs = 7%
*Largest trading partners from which Turkey imports:
* Germany 16%
* US 10%
* Italy 9%
* France 6%
* UK 5%

Exchange rate

Turkish Lira per US $1

* 1992 - 6,872
* 1993 - 10,984
* 1994 - 29,608
* 1995 - 45,845
* 1996 - 81,405
* 1997 - 110,119
* 1998 - 262,000

E. Foreign Investment

* Total volume of foreign investment = $US 9billion
* 60% of foreign investment is by firms in the European Union
* Largest investors:

* Holland - 19%
* France - 18%
* Germany - 11%
* Italy - 5%
* England - 5%
* US - 11%
* Japan - 8%
* Industries in which foreign investment is made:

* Automotive - 14%
* Banking - 14%
* Commerce - 10%
* Electronics - 7%
* Tobacco - 6.5%
* Food - 6%
* Chemicals - 6%
* Tourism industries - 6%
* The fact that Turkey is one of the fastest growing markets in the world increases the attractiveness of Turkeyfor foreign capital. Other factors include Turkey's favorablerelations with neighboring markets, decreased government regulations, well developed infrastructure and human resources, and cheapness of labor and technology.

* Factors cited by the Izmir Chamber of Commerce (Turkish Daily News, June 18, 1998) that inhibit foreign investment in Turkey include political instability, high inflation, corruption, the tax system, foreign families' social problems, disregard of copyrights, environmental protection laws, insufficiency of financial markets, and narrowness of possible investment areas.

* Examples of the Turkish government's efforts to liberalize economic policies to increase development and foreign investment:

* The Turkish Lira is fully convertible
* 100% foreign ownership is permitted
* 100% repatriation of profits and dividends is permitted
* Foreign management is allowed or welcomed
* Tariffs and non-tariff trade barriers have been lowered to

Match EU standards

* There is an active financial sector (Istanbul Stock Exchange)
* There is ongoing privatization of state-owned enterprises
F. Inflation
* Turkey has experienced high inflation rates in recent decades.
* In 1996 Turkey had the highest inflation rate in the world,79.3%, and the rate increased to 86% in    1997.
* The main reason for the high inflation is the large budget deficits which persist for the following reasons:

* Subsidies for state-owned economic enterprises
* Social security subsidies
* Insufficient taxation
* Service on previously accumulated debt

G. Turkey's market potential for US businesses Turkey is an excellent market for US businesses. It has a large population comprised of 63 million people, 50% of which is under the age of 30. Economic growth is averaging 5% per year, and in the long-term real growth rates could climb to 6-8% annually. As per capita income increases, there will be new markets for consumer products. There is a sizable and growing middle class which is becoming major consumers of imported goods and services. Markets in major cities include a wealthy, entrepreneurial, Western-oriented upper class.

Bibliography/Resources

Garten, Jeffrey E., The Big Ten; The Big Emerging Markets and How They Will Change Our Lives, Basic Books, 1997.
State Institute of Statistics (Turkey), Selected Indicators,September 1997. Turkish Daily News.