With 2010 ending as a year of consolidated growth, 2011 is proving itself as an important chapter in an economic success story that may well see Turkey take its place among the top 10 global economies by 2023—the Republic of Turkey’s centenary. Following record growth of 8.9% in 2010, the market expects slightly slowed but continued growth in 2011, with GDP crossing the $1 trillion mark in PPP terms.
Turkey’s emergence has been anointed with a new acronym coined by Jim O’Neill, the Goldman Sachs economist famous for coining the mainstream “BRIC” term. The new rhetorical turn, known as “MIST,” sees Turkey join Mexico, Indonesia, and South Korea on the new tier of the world’s most important emerging economies.
Political stability has been the anchor of this economic success following Turkey’s 2001 financial crisis. This trend will likely continue after the June 12 elections. The AK Party, in power since 2001, was able to form a single-party government for the third time, news that was well received by the international investor community.
Turkey’s FDI potential has been further boosted this year by a new commercial code. The framework aims to incorporate internationally accepted accounting standards into domestic legislation, increase the transparency of enterprises, and bring Turkish legislation in line with corresponding EU legislation.
The Central Bank of Turkey is continuing its unorthodox policy mix of lower policy rates, higher reserve requirement ratios (RRRs), and a wider short-term interest rate corridor. While the mix has been viewed with some skepticism by international analysts, RRR hikes appear to be successful in slowing credit growth with the ultimate aim of improving Turkey’s current account deficit, the Achilles’ heal of the economy. The main goal, according to new Central Bank Governor Erdem Baþçý, is price stability with financial strength as a supportive tool.
Turkey is also expecting to achieve investment-grade ratings in 2011, which many analysts see as an overdue correction in a lag between rating agencies and market perception. While bond spreads already reflect an investment grade sentiment, the change in status will result in significant increases of quality capital inflows.
As a result of a decline in interest rates and new regulations by the Capital Markets Board, the corporate bond market is currently experiencing a resurgence. Following a dormant period for private Turkish bonds, 11 companies raised TL1.55 billion through 19 issuances in 2010. There are even more on the agenda for 2011.
Turkey’s economy continues to be buoyed by a robustly capitalized banking system. Turkish banks boast a capital adequacy ratio of 17%, compared to an average 14.87% among the world’s largest 100 banks by market capitalization. The banks are posting record profits, as they have done even throughout the crisis, and are showing their ability to raise foreign financing on favorable terms.
In the real economy, growth is being driven by increasing agricultural output, a growing industrial sector, and the sustained strength of the construction sector, which spiked 17.5% in 2010. Turkey’s construction/contracting sector is now the second largest exporter in the world after China.
Tourism numbers are reaching record highs, with over 29 million visitors in 2010. By 2023 the country hopes to have more than doubled arrivals to 50 million, thereby becoming one of the world’s top five tourist destinations.
Leveraging its strategic geographic positioning and huge market access, Turkey is also becoming a hub for the world’s leading companies. Coca-Cola, for example, manages its operations in 90 countries throughout Eurasia and Africa from its Istanbul headquarters.
Strong domestic demand for cars and favorable industrial investment conditions have made Turkey a particularly attractive base of production for the global automotive industry. As a result, the Turkish automotive sector and spare parts segment have become highly dynamic industries, and the government has recently laid out an industry road map that ultimately sees the creation of a Turkish branded automobile.
Turkey’s foreign trade expectations index rose by 11.4 basis points from October 2010 through January 2011. As Europe reels from the financial crisis and Turkey’s EU membership prospects become less certain, the Republic is looking toward its nearer neighbors for economic opportunities. Ankara has recently established visa-free travel arrangements with Jordan, Syria, and Lebanon, while a large number of similar bilateral deals are actively under discussion.
Turkey’s foreign policy mantra of “zero problems with neighbors” is creating a significant regional economic impact as well as raising its geopolitical profile. In concert with its economic growth and political stability, Turkey’s friendly engagement with countries ranging from the US to Iran has seen it become an anchor of regional stability, an important mediator in Middle Eastern issues, and a bridge between East and West.
© The Business Year