Turkey has been at the center of world news again over the past year, as Prime Minister Ahmet Davutoğlu leads the nation through a particularly challenging era.

After a decade of remarkable economic growth, internal and external developments are exerting downward pressure on the country's markets, while for the first time since coming to power, the ruling AK Party lost seats in parliament. The June 2015 elections were hailed as proof of the robustness of Turkish democratic institutions, with an almost 84% turnout, but the formation of a coalition government has been delayed by renewed instability in the southeast of the country and security concerns about spillover from the conflicts in Syria and Iraq. With a second round of elections scheduled for November, uncertainty about the outcome of the current situation has led some investors to retreat.

However, decades of consolidation of the country's political and economic apparatus means that Turkey is well-equipped to deal with these temporary difficulties. Central Bank policymakers are pushing for a lower reliance on imported goods and are incentivizing exports, while Turkey can also boast of being one of the top countries among OECD members for removing restrictions in FDI policy. This pro-reform mentality is one of the main reasons Turkey has succeeded for so long. Its 77.7 million population naturally implies a large domestic market, and though consumer spending has been briefly dampened by a drop in the value of the lira, the sophistication of consumer culture guarantees continued demand for all products. The fact that over half of Turkish citizens are under 30 bodes well also, with over 600,000 graduates leaving universities annually, and the workforce is rapidly improving through a state-supported initiatives to increase overall productivity.
GDP growth over 3% was registered in 1H2015, with similar figures likely to be posted over the coming five years. Other macroeconomic indicators are positive, with the exception of inflation rates which are currently above the target figures. With a strong export-oriented manufacturing sector, Turkey has the solid foundations which have allowed it to emerge as one of the top-20 economies in the world. It has made impressive progress in improving competitiveness over the past decade, while per capita income has trebled in the same period. All in all, the country's success story is inspiring, with good prospects for the future provided the current political deadlock is overcome and it's business as usual again.

Chief among the attractions for investors is the resilient banking sector, which has endured the global financial crisis and more recent volatility in capital flows to emerging markets effectively. One development that has tested the mettle of the banking sector, and the wider economy in Turkey has been the steady decline of the lira against the dollar. Given that many of Turkey's massive infrastructure projects have been paid for my dollar-backed loans and internationally-tendered bond issuances, the cost of funding the economy has increased. Contractors are also being forced to reconsider margins on these same projects.

Elsewhere, the national transport and telecommunications infrastructure offers advanced connections with the country's major trading partners, particularly in the EU. Turkey's manufacturers and energy generators companies are benefiting from larger returns on exports due to cheaper energy costs. In the manufacturing sector, two major expenses are energy and raw materials, so Turkey's well-developed industrial capacity can now obtain cheaper commodities, produce at reduced costs, and then export for dollars that currently go much farther in the domestic market. Copper and other metals used in electronics and automotive manufacturing have declined by up to 50% over the last two years as demand in export markets such as the US and Europe has remained stable.

A partly privatized energy sector is also a major draw for FDI. Though lacking any major energy resources the country is a key energy transit route for linking the oil and gas producing nations of the Gulf and Central Asia with the largest energy consumers in the world in Europe. New pipelines are being discussed to capitalize still more on the country's strategic location as a cost-efficient logistics corridor, including the “Turkish Stream,” a potential conduit for Russian gas into Europe. However, increasing volumes of natural gas will have to be utilized domestically, and the nation will be under growing strain to develop energy capacities and reach the target of 100GW by 2023, using a combination of traditional, renewable, and nuclear power to achieve this.
The 2023 Vision, a policy document outlining the administration's plans for the next decade, will require shrewd management of the economy to realize its goals. Boosting GDP to $2 trillion, foreign trade to half that figure, and round off exports at $500 billion are all key elements of the strategy, which will ultimately place Turkey among the top ten economies in the world. Maintaining the current policies of conservative fiscal policy, along with improved levels of competitiveness and productivity, will allow Turkey to fulfill its ambitions to become a leading world power both diplomatically and economically.