With falling unemployment, rising consumer demand, and an increasingly strong export base, Turkey continues to cement its role as one of the top global economies, with strong growth prospects through the coming decade.

Since the brief downturn Turkey experienced as a result of the global financial crisis in 2009, the country's economy has seen a remarkable recovery over the past two years, and is now settling into a strong stable growth trajectory that analysts expect will persist through the medium term. GDP growth came in at 8.5%, bringing the country's GDP to $772 billion. Although this represents a slight drop from the 2010 GDP growth rate of 8.9%, it is still well above the 3.8% average experienced by the global economy, -0.3% by the eurozone, and even the 6.2% growth expected in emerging markets and developing countries overall. As a result, through 2011, Turkey remained one of the fastest growing economies in the world. Over the next few years, the government expects growth to slow to 4% in 2012 and 5% in 2013, before reaching an average of 6.7% between 2011 and 2017, as the economy returns from post-crisis recovery to stable, long-term growth. This will make Turkey the fastest growing OECD country over the current decade.

Services are the largest sector of the Turkish economy, employing almost half of the workforce and contributing over 45% of GDP in 2011. Within the service sector, which grew 8.7% in 2011, retail and wholesale trade showed the strongest growth, expanding by 11.4%, followed by transport, storage, and communications, which grew 10.8%, and financial services, which rose 9.6%. The real estate sector also showed strong growth of 9.3% compared to 2010. Behind the services sector, Turkey's growing industrial sector—including manufacturing and construction—accounted for 31% of GDP in 2011, and employed over 25% of the workforce. Construction was one of the fastest growing segments of the economy in 2011, expanding by 11.2%, with manufacturing following close behind with a 9.4% growth rate. Agriculture also remains a key sector in the Turkish economy. Although it accounted for less than 10% of GDP in 2011, it employs more than a quarter of the workforce.


Over the next three years, the government's top priority is to increase employment, particularly in underdeveloped regions of the country, and to maintain growth as the economy stabilizes following the 2009 downturn. The past year has seen unemployment continue to fall, dropping into the single digits in 1Q2012, from 11.9% in 2010 down to 9.9%. In 2012, the government predicts GNI to reach $822 billion, and income per capita to rise to $10,973. In the longer term, Turkey plans to transform the economy over the next 10 years, and become one of the top 10 economies in the world by 2023, the 100th anniversary of the founding of the republic. Vision 2023 aims to see the country with a GDP of $2 trillion, a per capita income of $25,000, and an unemployment rate of 5%.

The fundamental long-term aim of the government is to achieve what Zafer Çağlayan, the Minister of Economy, calls a “paradigm shift in the industrial and services sectors." Turkey's goal is to make the transition from a labor- and manufacturing-based economy to a knowledge and high-tech economy. The Investment Incentives Program is one way the country is encouraging this shift. Another is through high-tech education initiatives like the Fatİh Project. The project will introduce technology education into schools to ensure that the Turkish workforce has the ICT literacy necessary to compete in the global marketplace.


With its skilled workforce, low labor costs, and business-friendly government, Turkey is becoming an increasingly popular destination for foreign investors. Over the past two decades, FDI inflows to Turkey have grown enormously. Between 1990 and 2000, Turkey attracted just $8.7 billion from foreign investors. From 2001 to 2011, however, that amount increased 13-fold to $114 billion. In 2011 alone, Turkey received $15.9 billion in FDI, a 67% increase on the previous year. The majority of Turkey's FDI comes from within Europe, with 70% of FDI flows in 2011 coming from the EU. According to Minister Çağlayan, this “shows that European investors did not lose confidence in the Turkish market, despite the eurozone crisis." However, Europe's share in Turkey's FDI has been falling, down from 86% in 2004, as south-south investment increases, and emerging markets move from being FDI recipients to FDI sources. The stock value of GCC investments in Turkey exceeded $13 billion in 2011, up from $234 million in 2002. Russia, Azerbaijan, and the US have also been increasing their levels of FDI in Turkey, investing $700 million, $1.2 billion, and $1.4 billion respectively in 2011. In addition to FDI, there also been an increase in overseas M&A activity, particularly from China. Turkey also attracted one-third of all investment destined for the MENA region in 2011, according to statistics from the United Nations Conference on Trade and Development (UNCTAD).

In a recent survey of multinational companies conducted by the consulting firm A.T. Kearney, Turkey ranked as the 13th most attractive investment destination in the world. Unsurprisingly, then, this FDI growth is expected to continue, with the IMF projecting that the country will attract more than $110 billion in investment between 2012 and 2017. This sentiment was summed up by Minister Çağlayan, who told TBY that “this upward trend in FDI, in an era of negative economic circumstances and global crisis, is a good indication of investor confidence in Turkey."

These increases in investment have not come out of the blue. Indeed, the Turkish government has put significant effort into promoting foreign investment and cutting red tape to make Turkey one of the most investor-friendly countries in the world. The government recently instituted an Investment Incentives Program, aimed at encouraging investment in strategic sectors and regions across the country. The program provides breaks on customs, VAT, income tax, and social security payments, as well as providing financial support to investors who support the creation of jobs in underdeveloped areas or the growth of industries that will help bring down the current account deficit.


Turkey has maintained a tight fiscal policy despite the recent downturn, and, according to Ali Babacan, the Deputy Prime Minister for Economic and Financial Affairs, the country is determined to continue running a primary surplus until at least 2014. Over the past decade, the government has reduced the budget deficit from 12% of GDP in 2002 to 1.7% of GDP in 2011. Over the same period, the debt-to-GDP ratio fell from 74% to 40%. As Babacan explained in an interview with TBY, “a tight fiscal policy stance is going to be one of our most important policy tools. Another important tool is going to be the proactive measures by the Central Bank to maintain financial stability." This has been a key priority as the combination of the global financial crisis and the eurozone crisis have led to volatility in many emerging market currencies over the past year. In the wake of instability created by the eurozone crisis in August 2011, the Central Bank of the Republic of Turkey (CBRT) took steps to reduce exchange rate volatility and prevent the further depreciation of the lira. According to Erdem Başçı, Governor of the CBRT, who spoke to TBY in an interview, the priority of the Bank now will be “to focus on price stability while preserving financial stability."

In the medium term, the government plans to continue with structural reforms that will further reduce the deficit and promote sustainable growth. The success of the government's efforts to improve the country's fiscal health recently led Standard & Poor's to upgrade Turkey's local currency sovereign credit rating to BBB, recognition that the country is on a path of strong, stable growth.


Although Turkey's export industry has grown phenomenally over the past decade, the country's wealth has led to a massive expansion of the consumer base and an even sharper increase in imports as domestic producers have been unable to keep up with rapidly growing demand. Between 2002 and 2011, total exports nearly quadrupled from $35.8 billion to $135 billion. However, over the same period, total imports increased five-fold from $51.2 billion to $240.8 billion. As a result, the country's trade deficit reached nearly $106 billion in 2011, contributing to a current account deficit of $77.2 billion, or 10% of GDP.

The government has made reducing the current account deficit a top priority, and is implementing a number of strategies to tackle the issue from different angles. The Input Supply Strategy (GİTES) uses a number of targeted incentives to boost domestic production of intermediate manufacturing inputs that are currently imported. The aim of the strategy is to make domestic producers of these goods more efficient so they can compete domestically and internationally. In addition to GİTES, the Export-Oriented Manufacturing Strategy (İDUS) is focused on improving the export-competitiveness of selected sectors of the economy. The government currently has action plans in place for the iron, steel, automotive, chemicals, machinery, textiles, and agriculture industries. There are also plans to diversify the country's export markets. The government has identified a list of “target countries" that did not experience a significant contraction in foreign trade during the global financial crisis and is organizing trade and contracting missions to promote Turkish exports.

Another contributing factor in Turkey's current account deficit is its huge reliance on imported oil and gas for energy. In 2011, Turkey imported $54 billion in petroleum and fuel products, a 41% increase on the previous year, making it the 14th largest petroleum and fuel importer in the world. To address this issue, the government is putting more emphasis on encouraging investment in alternative energy sources, including renewables and nuclear. As part of Vision 2023, the country plans to build three nuclear plants to help meet growing energy needs and reverse the growth of energy imports.

The government predicts that, as a result of these policies, the current account deficit will decrease over 2012 by $6.3 billion to $65.4 billion, or 8% of projected GDP. In the long term, through Vision 2023, Turkey plans to achieve an export volume of $500 billion by 2023, giving it a 1.5% share of world export markets. Currently, 71% of Turkey's GDP comes from local consumption, while Turkey's main export markets, the EU, MENA, and Russia, account for $8 trillion, or 46% of the world's total import markets. The government sees a great deal of further growth potential to build exports.