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1.1. Catalyst
This profile analyzes the political, economic, social, technological, legal and environmental (PESTLE) structure of
Turkey. Each of the factors is explored in terms of four parameters: current strengths, current challenges, future
prospects and future risks.
1.2. Summary
The country has a stable banking sector but the depreciation of the Turkish lira because of the
COVID-19 pandemic is a risk to the economy
The country has a stable banking sector and has endured several financial crises. After the global financial crisis, the
Central Bank of Republic of Turkey (CBRT) adopted a policy mix where reserve requirements and the interest rate
were used to reduce the negative effects of volatility in capital flows. This helped the country to maintain a resilient
Turkish financial system. During the COVID-19 pandemic, the rapid worsening of the economic outlook and the
complete change of risk perception affected both the banks' lending appetite and demand for loans; however, with a
stable banking sector, the CBRT was able to announce various measures to ensure the uninterrupted continuation of
loan flows and to support the consumers affected by the outbreak. According to the ‘Financial Stability report May
2021’, the non-performing loans (NPL) ratio of the banking sector stood at 3.8% as of March 2021, compared to 5.4%
at the end of 2019.
However, the Turkish lira has hit an all-time low against the US dollar amid mounting geopolitical and macroeconomic
risks in the region in 2020. Apart from clashes between Armenia and Azerbaijan, tensions between the US and Turkey
are high due to sanctions on Turkey for purchasing S-400s from Russia in October 2020 and the Middle East migrant
crisis. Another reason for the free fall of the lira was that the informal measures proposed by the Central Bank did not
suffice to stabilize the lira and proved to be temporary amid the global pandemic. In 2021, an unsure monetary policy
stance, coupled with heightening geopolitical risks in the area, has led to the depreciation of the lira.
Turkey has ambitious targets for its ICT sector; however, high piracy levels are a problem
Turkey’s ICT sector has improved significantly over the last decade. According to TUBISAD (Turkish Informatics
Industry Association), the ICT sector reached a volume of TRY152.7bn (US$18.42bn) in June 2020. According to
"Turkey's Digitalization Index Report”, the country’s digitization rating stood at 3.06 in 2020, compared to 2.94 in
2019, out of a total score of five. Under the government’s “Vision 2023” strategy, the country aims to reach 30 million
broadband subscribers, supply 50% of the ICT sector with domestic products and services, increase the ICT sector’s
share to 8% of GDP, increase R&D expenditure to 3% of GDP, and increase computer literacy to 80% of the population.
However, Turkey is recognized as a country where IPR protection and enforcement is a key challenge. Software piracy
rates continue to be high, due to widespread use of unlicensed software by enterprise end users. According to the
BSA’s ‘Global Software Survey 2018’, the country’s software piracy rate was 56%, representing a commercial value of
US$208m. The global average was 37% during the same year.
Turkey has strong environment policies but poor performance on the Environmental
Performance Index (EPI) is a challenge
The country has strong environmental policies and has been modernizing its environmental laws as part of its EU
accession initiatives. Local municipalities have important roles in recycling, waste sewage treatment, water
purification, solid waste management, and environmental remediation. The country’s environmental policies
emphasize energy efficiency and most EU laws in this area have been implemented. The Energy Efficiency Law and the
Law on Utilization of Renewable Energy Resources form the backbone of the nation’s environmental policy. In July
2020, the Environment Ministry signed a new circular “Maritime Waste Practice” envisaging stricter measures for
waste originating from ships, along with the monitoring of waste from ships using online applications.
Political landscape
• In March 2020, the government announced its economic recovery plan to tackle the COVID-19
pandemic. As of August 2021, the total announced stimulus package stood at US$73.56bn
(equivalent to 11.5% of GDP).
• In December 2020, the UK and Turkey signed a mutually beneficial trade deal. The trade deal is yet
to be ratified by both the countries but has been applied provisionally. The deal is expected to
facilitate the smooth transfer of goods, services and technology across borders between the two
countries.
Economic landscape
• According to MarketLine, Turkey’s real GDP rose by 1.8% in 2020, compared to 0.9% in 2019. The
headwinds caused by a sharp depreciation of the lira, along with a shaky recovery in key sectors of
the economy, remain the biggest concern for 2021.
• In February 2021, the credit rating agency Fitch Ratings downgraded Turkey’s Long Term Issuer
Default Ratings (LDRs) at BB-, changing the outlook to stable from negative, as a result of depleting
foreign exchange reserves and a deepened current account deficit due to the heavy stimulus
package announced by the government to combat the COVID-19 pandemic.
Social landscape
• According to MarketLine, Turkey had a literacy rate (15 years and above) of 96.4% for the total
population in 2020. While the male literacy rate was 99.1%, the female literacy rate was lower at
93.2%. The relatively low literacy rate for women is the result of the feudal mindset that prevails in
rural areas of the country.
• Weak labor laws, which hinder the formation of unions, have considerably restricted workers’
rights in Turkey. Since labor laws are not efficient, labor forces are open to exploitation in the
form of long working hours without payment for overtime, unjustified terminations, and
limitations on the usage of annual leave.
Technological landscape
• The low level of innovation in Turkey is reflected by a low number of patents registered, with the
country trailing behind other developing nations. According to data from the United States Patent
and Trademark office (USPTO), the number of patents granted was 223 in 2020 for Turkey. Turkey
has performed worse than European counterparts, such as Poland, which secured 439 patents in
2020.
Legal landscape
• Turkey is on the way to introducing a new constitution. In February 2021, President Recep Tayyip
Erdoğan called for a new civilian constitution that will have greater emphasis on creating democratic
institutions and equality for all. The new constitution will also allow citizens to propose new laws in
parliament.
• Corporate tax is charged on income and earnings derived by public and private limited companies,
including foreign and other joint venture companies. Turkey has increased the tax rate to 25% for
2021, and 23% in 2022, compared to the previous 20% tax rate.
Environmental landscape
• According to BP’s Statistical Review 2021, CO2 emissions increased from 276.3 million tons in 2010
to 369.5 million tons in 2020.
• Turkey charges relatively low transport fuel taxes, which indirectly encourages consumers to use
more carbon-rich fuels, leading to more pollution. The low tax regime for fossil fuels is inhibiting the
development and adoption of green technology and related entrepreneurship.
1.2.3.1 Snapshot
The country had its first COVID-19 case on March 11, 2020. As of August 10, 2021, the country had registered 5.97
million COVID-19 cases and 52,437 deaths. According to John Hopkins University, as of August 10, 2021, 79.2 million
doses of the COVID-19 vaccine had been administered in Turkey. The pandemic has affected the Turkish economy mildly
compared to peers. The strong stimulus measures have supported businesses and households during the crisis.
1.2.3.2 Vaccination
The vaccines primarily administered in Turkey are BioNTech, Pfizer, CoronaVac, and Sputnik. As of August 25, 2021,
42.5% of the population has been fully vaccinated and 13% has been partially vaccinated. Even though half of the
population has been fully vaccinated, the eastern provinces are lagging behind due to severe vaccine hesitancy and a
lack of awareness.
• The Central Bank of Turkey reduced the policy rate for the ninth time in the last year to increase the
flow of money into the economy.
• Stimulus packages of at least US$73.56bn (9.80% of the GDP) have been introduced by the Turkish
government since the start of the pandemic.
• Turkey’s central bank tripled its currency swap agreement with Qatar on May 22, 2020, securing
funding to compensate for the country’s widening fiscal deficit and potential full-year recession.
• The country may restrict the export of face masks for domestic purposes.
• Turkey's Central Bank increased the policy rate from 8.25% to 10.25% to restore the disinflation
process and support price stability in September 2020.
Banned
• Turkey announced it would drop its curfews starting July 1, 2021. (June 21, 2021)
• Turkey announced a full lockdown for the country from April 29, 2021 to May 17, 2021. (April 27,
2021)
Exempted
• Government announced that it would further ease restrictions from June 1, 2021. Under the new
rules, the nation's existing weekday curfew was shortened by one hour to run 22:00–05:00; the
weekend curfew, on the other hand, would run from 22:00 each Saturday to 05:00 the following
Monday. Residents had to remain in their homes during curfew hours, except to perform essential
services. (May 31, 2021)
• Turkey relaxed its lockdown and partially reopened restaurants by easing weekend lockdowns.
(March 1, 2021)
• Passengers arriving from Afghanistan, Bangladesh, Benin, Burkina Faso, Congo (Dem. Rep.), Cote
d'Ivoire, Djibouti, Gabon, Ghana, Guinea, Kenya, Mali, Mauritius, Niger, Senegal, Sierra Leone or
Somalia were not allowed to enter the country. (July 27, 2020)
• Turkey allowed senior citizens (65 years and older) to travel for tourism purposes after obtaining
permission from concerned authorities. (June 25, 2020)
PESTLE COUNTRY ANALYSIS REPORT: TURKEY ML00002-050/Published 09/2021
© MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED Page | 7
• Turkish Airlines resumes flights to Chicago and Washington from June 19. (June 21)
• Turkish authorities removed restrictions on international and domestic travel and provided “virus-
free” certificates to hotels to encourage tourism. (June 21, 2020)
• Turkish authorities also made face masks mandatory in three major cities to curb spread of COVID-
19. (June 19, 2020)
• The country resumed flights to and from 40 countries on June 15. Individuals arriving in Turkey were
told they may have to self-quarantine for 14 days if they had symptoms. (June 12, 2020)
• The country marked its first weekend without lockdown since March, 2020. (June 5, 2020)
• Restaurants, beaches and museums reopened; limited domestic flights resumed. (June 1, 2020)
• Inter-state travel that was imposed in April to be lifted in June. (May 27, 2020)
• Automotive industry resumed production; full capacity was expected by mid-July. (May 17, 2020)
• Travel restrictions were relaxed for nine provinces. (May 12, 2020)
• Shopping malls and barbershops were allowed to reopen from May 11 onwards. (May 11)
• Senior citizens were allowed to exercise outside on May 10, 2020. (May 10, 2020)
• The Turkish government announced plans for the gradual easing of lockdown. (May 5, 2020)
• The government lifted entry and exit restrictions on seven cities where COVID-19’s spread had been
low. (May 4, 2020)
• The president announced extended weekend lockdowns from May 1, 2020. (April 28, 2020)
• Bakeries, hospitals, pharmacies and workplaces producing health products and medical supplies
were allowed continue to operate during the curfew. Essential sectors such as water, print and
media, gas cylinders, and emergency call centers were open during the lockdown. (April 16, 2020)
• The CDC has added Turkey to "Level 4: COVID-19 Very High" travel recommendations, urging people
to avoid travel if possible and only to travel only if fully vaccinated. (Aug 17, 2021)
• Turkey has banned the entry of passengers from six nations: namely Bangladesh, Brazil, South
Africa, India, Nepal, and Sri Lanka until further announcements. Passengers arriving from the UK,
Iran, Egypt, or Singapore will need to present a negative PCR test taken within 72 hours prior to
arrival. (July 27, 2021)
• Turkey announced it would be imposing a lockdown from April 29, 2021 which was expected to last
until May 17, 2021. Turkish officials have affirmed that passengers who come from abroad or wish
to travel abroad do not need a travel permit during a lockdown. (April 28, 2021)
• Turkey has announced the lifting of a ban on direct flights from the UK. Arrivals need not present a
so-called “vaccine passport” but must show a negative PCR test result taken within 72 hours of
travel. (April 24, 2021)
• From December 28, 2020, international passengers to Turkey arriving by air must submit a negative
PCR virus test result obtained within the last 72 hours before their departure. From December 30,
• Turkey's Central Bank increased the policy rate from 8.25% to 10.25% to restore the disinflation
process and support price stability. (September 24, 2020)
• The BRSA reduced the general cap on the maturity of personal finance credits to 36 months from
60 months. (September 7, 2020)
• Additional state payments to the personnel working in health facilities affiliated with the Health
Ministry were extended by three months as of August 1. (September 1, 2020)
• The special consumption tax (OTV) rate on mid-range and luxury passenger cars was raised and the
price bracket for cheaper cars that are subject to lower OTV rates was levelled up. The VAT rate on
education services was reduced to 1% from 8%. (August 30, 2020)
• The CBRT kept the policy rate unchanged while committing to continue with tighter TL liquidity
measures. The CBRT also decided to raise the FX and TL reserve requirement ratios for banks,
fulfilling real credit growth conditions. (August 20, 2020)
As a result of the COVID-19 pandemic, consumer and economic sentiment dipped, specifically in Q2 2020. Global
lockdown measures and a considerable drop in Turkey’s foreign exchange reserves have elevated external
financing and market pressures. External pressures and containment measures combined into an abrupt halt in
domestic output in April–May 2020. The government’s strong stimulus measures and a loose monetary policy has
been crucial for economic stability in 2020. Despite a turndown in the second quarter of 2020, the economy has
recorded a recovery in GDP in the third and fourth quarters of 2020 and in the first quarter of 2021. GDP grew by
6.3% in Q3 2020 and 5.9% in Q4 2020 Y-o-Y. In Q1 2021, real GDP grew by 7.0% Y-o-Y. The COVID-19 shock has
significantly intensified declining trends in labor force participation and employment. The unemployment rate
increased to 14.1% in February 2021 compared to 13.5% in February 2020. In June 2021, the rate declined to
10.4%, though it still remains in the double-digit range.
GDP, constant 2010 prices (US$ tn) 1.25 1.26 1.28 1.35 1.41 1.46 1.51 1.57
GDP growth rate (%) 2.96 0.92 1.79 5.74 3.72 3.73 3.77 3.75
GDP, constant 2010 prices, per capita 15,248.60 15,175.34 15,260.29 15,906.49 16,308.56 16,724.43 17,163.54 17,616.00
(US$)
Inflation (%) 16.33 15.18 12.27 16.05 13.88 13.01 12.46 11.96
Exports, total as a percentage of GDP 30.24 32.17 30.21 36.40 34.37 32.00 30.47 28.95
Imports, total as a percentage of GDP 33.15 31.15 37.26 38.46 35.91 33.10 31.22 29.40
Mid-year population (million) 82.00 83.15 84.17 85.18 86.20 87.21 88.20 89.18
Unemployment rate (%) 11.00 13.71 13.13 12.38 10.98 10.41 10.13 9.87
Mobile penetration (per 100 people) 97.30 97.72 98.03 98.27 98.44 98.57 98.67 98.74
1.1. Catalyst 2
1.2. Summary 2
1.2.3.2 Vaccination 6
3. PESTLE ANALYSIS 23
3.1. Summary 23
3.6.1. Overview 39
3.6.2. Current strengths 39
4. POLITICAL LANDSCAPE 46
4.1. Summary 46
4.2. Evolution 46
4.2.1. Pre-1975 46
4.2.2. 1975–2000 46
4.4. Performance 53
4.4.1. Governance indicators 53
4.5. Outlook 53
5. ECONOMIC LANDSCAPE 54
5.1. Summary 54
5.2. Evolution 54
5.2.1. 1923–1990 54
5.4. Performance 57
5.5. Outlook 66
6. SOCIAL LANDSCAPE 67
6.1. Summary 67
6.2. Evolution 67
6.3.3. Education 69
6.4. Performance 70
6.4.1. Healthcare 70
6.4.3. Education 71
6.5. Outlook 72
7. TECHNOLOGICAL LANDSCAPE 73
7.1. Summary 73
7.2. Evolution 73
7.3.1. R&D 73
7.4. Performance 74
7.5. Outlook 75
8. LEGAL LANDSCAPE 76
8.1. Summary 76
8.2. Evolution 76
8.4. Performance 77
8.5. Outlook 78
9. ENVIRONMENTAL LANDSCAPE 79
9.1. Summary 79
9.4. Performance 80
9.4.1. Environmental impact 80
9.5. Outlook 81
10. APPENDIX 82
10.3. Disclaimer 82
Figure 5: Turkey – Youth Unemployment as a Percentage of the Total Labor Force Aged 15–24,
2012–2020 33
Figure 8: IPR Performance Scores Comparison (Low Scores Correspond to Lower Efficiency),
2020 37
Figure 13: Turkey – Renewable Electricity, Installed Capacity (Billion Watts), 2010–2019 44
Figure 20: Turkey – Real GDP and Real GDP Growth Rate (US$ Trillion/%), 2016–2025f 58
Figure 26: Turkey – Consumer Price Index and CPI-based Inflation, 2016–2025f 65
Figure 27: Turkey – Total Unemployment and Rate of Unemployment (Millions/%), 2016–2025f 66
Figure 28: Turkey – Major Religions, 2018 69
Table 9: Turkey – Mid-Year Population by Age (as a Percentage of the Total Population), 2020 68
Government
Government type Presidential republic
Head of state and government President Recep Tayyip Erdogan (since 2014)
Demographic details
Life expectancy (2020) 75.7 years (total population)
73.3 years (men)
78.2 years (women)
3.1. Summary
On April 16, 2017, the Turkish people validated a change to the composition of government, from a parliamentary to
a presidential system, which granted President Erdogan expansive powers. In July 2018, Erdogan won the
presidential election and Turkey completely transitioned to a presidential republic. This brought political stability to
the country. However, foreign policy tensions are likely to continue as Turkey’s relationships with the EU and the US
are in disarray. There is a growing concern over Turkey leaving NATO as its relationship with Russia becomes
stronger due to converging mutual interests. In recent years, Turkey has become militarily involved in Libya, Syria,
and Iraq by storming up patrols in the Eastern Mediterranean waters dispute.
Turkey’s economy is characterized by a stable banking sector and sound public finances. The country improved its
current account balance due to an improvement in exports. The current account deficit narrowed from 2.7% of GDP
in 2018, to a surplus of 0.9% in 2019, aided by support from tourism revenues and a relatively low trade deficit,
according to the IMF. According to the IMF, the current account registered a deficit of 5.1% of GDP in 2020.
According to MarketLine, the country’s GDP growth is expected to accelerate by 5.7% in 2021 due to the impact of
intense stimulus on economic activities.
Turkey has one of the youngest populations in Europe. With the rest of Europe facing the problem of an aging
population, the country has an opportunity to increase its employment rate by capitalizing on its young labor force.
To enjoy the advantages associated with a young population, the government must improve its tertiary education
outcomes and strengthen its labor laws, both of which can act as hindrances to labor market efficiency. The
government is making efforts to eliminate child labor and is taking up initiatives to develop the rural economy.
The Turkish technological landscape is characterized by a strong ICT sector, which offers investment opportunities
for domestic and foreign investors. The government has played its part by encouraging foreign entities, prominent
universities, and research organizations to perform research. The creation of “teknoparks” will attract investment.
Meanwhile, the commercialization of research output remains weaker in Turkey than in other developing
economies, notably the BRICS nations. The country’s weak enforcement of its IPR laws is considered a major
challenge to technological growth.
Turkey has a moderately friendly business environment. However, judicial inefficiencies, such as political bias and
the time taken to complete trials, continue to impede the legal machinery. The level of corruption is also a cause for
concern in Turkey. Turkey’s product market is highly regulated compared to its European counterparts. It affects the
competition in the market. According to the Global Competitiveness Index, Turkey’s product market is less
competitive than Greece and Hungary.
Turkey has strong environmental policies and is a signatory to most regional and global environmental accords. The
country is also a participant in many environmental programs. Despite these initiatives, it performed poorly in the
2020 Environmental Performance Index (EPI) carried out by Yale and Columbia. Against the backdrop of growing
concerns for the environment, the government is planning to leverage its large, but underutilized, potential in
renewable energy. In addition, air and water pollution needs to be addressed. Increasing levels of pollution in the
Black Sea are a concern for Turkey.
3.2.1. Overview
Turkey is a member of NATO, the EU, and OECD, which has substantially strengthened its international standing.
Turkey’s relationships with the EU and the US are in disarray after a series of challenges have caused tensions. The
concern over the risk of Turkey leaving NATO has been growing since early 2017, as Turkey has gravitated closer to
Russia due to converging mutual interests. In August 2020, Greece and Turkey were involved in a spat over gas
reserves and maritime rights, which has prompted fears of tension escalating further. In early 2021, Turkey has set
its sight on creating a new constitution that will focus on establishing rule of law in the country.
Political instability
2019 proved to be challenging year for the Turkish economy, with unrest within President Erdogan’s party, as well as
heightened tensions between Turkey and the EU. In April 2019, the Turkish president demanded a re-run of the
Istanbul mayoral election over claims of irregularities and fraud. The danger of a worsening economy as a result of
the COVID-19 outbreak and the already existing economic slump is compounding political instability, threatening the
economic gains made by the Erdogan government. According to the Worldwide Governance Indicators for 2020,
published by the World Bank, the country’s percentile rank in terms of political stability and absence of violence/
terrorism deteriorated from 15.64 in 2009 to 10.00 in 2019.
New constitution
In early 2021, President Recep Tayyip Erdoğan called for a new civilian constitution. The government has stated that
the new constitution will aim to prioritize fundamental rights and freedoms, the rule of law and democracy. The
present constitution of Turkey was written in the 1980’s by military leaders. As a result, the present government has
termed it a coup-era artifact. In the new constitution, citizens and politicians are expected to contribute towards
writing it.
3.3.1. Overview
The Turkish economy has been on a growth path since 2000. The Turkish economy is characterized by a stable
banking sector and sound public finances. However, a perennially high current account deficit could be a major
source of vulnerability if investors’ risk appetite shifts, as the economy is dependent on volatile short-term flows and
short-term external debt to fulfill its external financing requirements. The Turkish economy has been overheating
since 2017. This situation, along with the tight monetary policy of the US, has pushed Turkey’s economy towards
stagflation. In 2020, the economy recorded a rise in GDP growth on the back of strong fiscal and monetary stimulus.
In September 2020, the country’s debt rating was downgraded by Moody’s, warning of a balance-of-payments crisis.
The collapse of the tourism industry in 2020, along with prolonged restrictions on international travel in 2021, is
fueling pressure on the country’s currency.
65.0
60.0
External Debt Stock as a % of GDP
55.0
50.0
45.0
40.0
Q1 2016
Q2 2016
Q3 2016
Q4 2016
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q2 2018
Q3 2018
Q4 2018
Q1 2019
Q2 2019
Q3 2019
Q4 2019
Q1 2020
Q2 2020
Q3 2020
Q4 2020
Q1 2021
Q1 2018
Year
45.0
43.0
41.0
39.0
37.0
Percentage
35.0
33.0
31.0
29.0
27.0
25.0
2016 2017 2018 2019 2020 2021f 2022f 2023f 2024f 2025f
Year
3.4.1. Overview
Turkey has one of the youngest populations in Europe. With the rest of the region facing the problem of an aging
population, the country has an opportunity to increase its employment rate by capitalizing on its young labor force.
However, to enjoy the advantages associated with a young population, the government must improve its tertiary
education outcomes and strengthen its labor laws, both of which can hinder labor market efficiency. The
government is already making efforts to eliminate child labor and is taking up initiatives to develop the rural
economy. The Turkish government’s New Economic Program (NEP) for 2021–2023 is set to install policies not only to
support economic growth but also to promote sustainable growth to facilitate youth employment and short-term
flexible work models, as announced by the Treasury and Finance Ministry on September 24, 2020. In 2020, recent
amendments to labor laws were also introduced amid the COVID-19 pandemic. The New Amendment Law
introduced significant changes, which entered into force on March 25, 2020.
Young population
According to the CIA World Factbook, Turkey has one of the youngest populations in Europe, with a median age of
32.2 years as of 2020. According to MarketLine, in 2020, the age structure showed that 23.3% of the population
belonged to the 0–14 age group, 68.3% to the 15–64 age group, and 8.4% to the 65+ age group. With the rest of
Europe facing an increase in the average age of its population, Turkey has an opportunity to increase its employment
rate by capitalizing on its young labor force.
Figure 4: Turkey – Female Labor Force Participation (% of Female Population Aged 15–64), 2020
90.0
Female Labor Force Participation (% of Female Population
79.7 79.8
80.0 75.2 75.4 75.4 76.1
71.6 72.9
70.0 66.2 68.0
63.6
60.0
Aged 15-64)
50.0
40.0 37.6
30.0
20.0
10.0
0.0
Turkey
The UK
The US
Spain
France
Germany
Finland
Latvia
Denmark
Switzerland
The Netherlands
Sweden
©MARKETLINE
SOURCE: The World Bank
Figure 5: Turkey – Youth Unemployment as a Percentage of the Total Labor Force Aged 15–24, 2012–
2020
30.0
As a Percentage of the Total Labor Force Aged 15-24
20.0
10.0
0.0
2012
2013
2014
2015
2016
2017
2018
2019
2020
14.0
13.0
12.0
11.0
% of GDP
10.0
9.0
8.0
7.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
60.0
Population with Tertiary Education (% in the Same Age Group)
50.0
40.0
30.0
20.0
10.0
0.0
Costa Rica
Greece
Spain
Colombia
Poland
Slovakia
Finland
Israel
Mexico
Turkey
Austria
OECD Average
The US
Italy
Germany
Estonia
Latvia
Slovenia
Denmark
France
The Netherlands
The UK
New Zealand
The Czech Republic
25–34 55–64
3.5.1. Overview
Turkey’s technological landscape is characterized by a strong ICT sector, which represents investment opportunities
for domestic and foreign investors. The government is playing its part by encouraging foreign entities, prominent
universities and organizations to perform research. The creation of “technoparks” aims to attract investment.
Despite these measures, the commercialization of research output remains weaker in Turkey than in other
developing economies – notably the BRICS nations. The country’s weak enforcement of its IPR laws is considered a
major challenge. The work of developing different units of 5G continues uninterrupted despite the COVID-19
pandemic, according to Ulak Communications. The TÜBİTAK 5G Industrial Innovation Network Mechanism project,
which is planned to start in 2021, is also being carried out under Ulak Communications.
Intellectual Property
Rights
10
9,000.0 8,834
7,981
Number of Patents Granted
6,000.0
3,000.0
1,187
223 439
137
0.0
Turkey
Poland
The UK
France
Spain
Greece
3.6.1. Overview
Turkey has adopted a series of reforms to bolster its robust business environment, including the creation of the
Investment Support and Promotion Agency of Turkey (ISPAT). However, judicial inefficiencies, such as political bias
and the time taken to complete trials, continue to impede the nation’s legal machinery. According to the ‘Rule of
Law Index 2020’, by the World Justice Project, which measures how the rule of law is experienced in practical,
everyday situations by ordinary people in different countries around the world, Turkey’s overall global rank was
107th out of 128 countries, rising three positions in its global rank from the 2019 index. Turkish parliament approved
a law in July 2020 that gives the authority to government to regulate social media, despite concerns of growing
censorship. In 2020, Turkey made paying taxes easier by amending the value added tax code to exempt certain
capital investments from value added tax.
Business-friendly environment
Turkey’s robust framework for business entities creates a successful commercial environment and drives growth.
The country was ranked 76th out of 180 countries evaluated in the ‘2021 Index of Economic Freedom’, by the
Heritage Foundation and the Wall Street Journal, compared to Greece’s rank of 96th. In 2021, the country scored
75.8 out of 100 in terms of the ‘business freedom’ parameter. In the World Bank’s 2020 Doing Business report,
Turkey was ranked 33rd out of 190 countries, compared to Greece’s rank of 72nd. To start a business in Turkey, it
takes seven days, which is much lower than the Europe and Central Asian average of 11.9 days, and the OECD high
income average of 9.2 days. The time taken to deal with construction permits in Turkey (100 days) is lower than the
Europe and Central Asian average of 170.1 days and the OECD high income average of 152.3 days.
Judicial inefficiencies
Delays in the Turkish judicial system are a serious concern and have been the subject of much debate. The political
bias of judges has affected legal outcomes. The High Council of Judges and Prosecutors controls the careers of
prosecutors and judges and can sway their decisions. Long pretrial detention and excessively protracted trials are
also major concerns. Turkish commercial courts are overloaded with cases, and on an average, it takes over a year to
resolve each case. Criminal trials are slow due to the backlog of cases and decisions are often arbitrary and subject to
political interference, especially in high profile cases. According to the International Property Rights Index (IPRI)
2020, Turkey’s score on judicial independence is 3.316, which is lower than Greece’s score of 4.137.
10.0
Scores (Zero Means Less Efficient)
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Judicial independence Rule of law Control of corruption
Pro-business reforms
The government adopted a number of reforms to introduce European business regulations and standards and
established the Investment Support and Promotion Agency (ISPAT) to promote business opportunities. Turkey’s
business environment has improved significantly, and according to the World Bank’s Doing Business report in 2020,
the country’s improved rank (33rd) is indicative of its better investment environment. Turkey has improved its credit
information system in recent years, established a unified collateral registry and allowed out of court enforcement of
collateral. These initiatives have improved access to credit in Turkey. In 2019, Turkey removed the minimum paid-in
capital requirement to start a business. The improvements in the online portal for tax payment have made tax
payment and filing easier.
2.5
Product Market Competitiveness Score
2.0
1.5
1.0
0.5
0.0
Hungary
Poland
Luxembourg
The UK
Norway
Chile
Iceland
Greece
The US
Turkey
Denmark
Slovenia
Italy
Spain
Germany
Switzerland
Latvia
Finland
Ireland
France
The Netherlands
Sweden
Estonia
Austria
Slovak Republic
Portugal
Belgium
SOURCE: World Economic Forum, Global Competitiveness Index ©MARKETLINE
3.7.1. Overview
Turkey has strong environmental policies. It is a signatory to most regional and global environmental accords and is a
participant in many environmental programs. Despite these initiatives, the country performed poorly in the 2020 EPI
carried out by Yale and Columbia, with a rank of 99th out of 180 countries. Against a backdrop of growing
environmental concerns, the government is planning to use its underutilized renewable energy potential. There is
also an urgent requirement to address air and water pollution. A high level of pollution in the Black Sea is a serious
concern for Turkey. The deadly forest fires that broke out in Turkey in July 2021 has brought the issue of climate
change and pollution control measures adopted by the government to the forefront.
International cooperation
Turkey is a signatory to most regional and global environmental accords and environmental programs. The country is
a signatory to the United Nations Convention to Combat Desertification, the Convention on the Protection of the
Black Sea Against Pollution (Bucharest Convention), the United Nations Framework Convention on Climate Change,
the Kyoto Protocol, the Convention on International Trade in Endangered Species, the Convention on Biological
Diversity, the Convention for the Protection of the Marine Environment and the Coastal Region of the
Mediterranean (Barcelona Convention), and the Basel Convention on the Control of Trans-boundary Movements of
Hazardous Wastes and their Disposal. The country has made successful use of international methods to acquire
technical and financial assistance to maintain national environmental priorities.
According to the United Nations Convention to Combat Desertification’s (UNCCD) 2018 statistics, Turkey loses 154
million tons of topsoil annually. According to BP’s Statistical Review 2021, CO2 emissions increased from 276.3
million tons in 2010 to 369.5 million tons in 2020.
Figure 13: Turkey – Renewable Electricity, Installed Capacity (Billion Watts), 2010–2019
50.0
45.0
40.0
35.0
Billion Watts
30.0
25.0
20.0
15.0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Distortionary policies
Turkey charges relatively low transport fuel taxes, which indirectly encourages consumers to expend more carbon-
rich fuels, leading to more pollution. The price of scarce energy resources should take into account the
environmental and social costs, and introducing a tax is an effective way to curb the reckless use of non-renewable
natural resources. Moreover, a distortive pricing mechanism is inhibiting the development of green technology and
related entrepreneurship.
550.0
500.0
Million Metric Tons
450.0
400.0
350.0
300.0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Year
4.1. Summary
In April 2017, through a referendum, Turkey opted for a presidential system to replace the existing parliamentary
system. This change grants enormous powers to President Erdogan. In July 2018, Erdogan won the presidential
election, and the 95-year-old parliamentary democracy was completely transformed into a presidential democracy.
Concerns over the risk of Turkey leaving NATO have been growing, due to Turkey’s increasing disagreements with
the US on the Syria issue, and Turkey’s improving relationships with Russia and Iran. In October 2020, Poland and
Turkey underlined the importance of national security and brought together Warsaw and Ankara to discuss defense
security, along with their strong alliance within NATO. Turkey has consistently expressed its interest in joining the EU
and in April 2021, the leaders of EU stated they are interested in supporting a concrete and positive agenda with
Turkey.
4.2. Evolution
4.2.1. Pre-1975
Turkey was dominated by the Ottoman Empire from the Middle Ages to the 20th century. The imperial reign began
to deteriorate in the 19th century when the Ottoman Empire, under pressure from the West, implemented a series
of reforms called Tanzimat from 1839–1876. The dissatisfaction created by the resulting bureaucratic absolutism led
the Young Ottoman movement to turn towards the creation of a more liberal Western-style secular government and
improve the country's relations with Europe, although these changes were later stifled by Sultan Abdulhamid II in
the 1870s.
In 1876, Turkey formed a parliamentary constitution under the leadership of Abdulhamid, who was forced by the
Young Turks movement to summon a parliament in 1908. He planned a counter-revolution in 1909, but following its
failure, was banished to Salonika. Abdulhamid was succeeded by Enver Pasha. During 1909–1912, European powers
took advantage of the weak Ottoman government to occupy most of the empire’s remaining territory in Southeast
Europe. During World War I, Enver Pasha’s alliance with Germany caused Britain, France, and Russia to declare war
on the Ottoman Empire.
The country’s economic and political conditions worsened during World War II, and in early 1945, Turkey declared
war on Germany. In 1952, Turkey became a member of NATO. During the 1950s, conflicts between different political
parties increased, as Prime Minister Adnan Menderes' government was perceived as too rigid by his opponents. The
economy suffered due to inflation and heavy debt during this period. In 1960, Menderes responded to mounting
protests by implementing martial law and suspending political activities. Following this, under the leadership of
Suleyman Demirel of the Justice Party – which gained a majority of seats in the 1965 election – a single party
government was formed. Turkey experienced a series of weak coalition governments during the 1970s.
4.2.2. 1975–2000
During 1978–1979, the military took over the administration due to an increase in political violence, which had
started to affect Turkey’s fragile economic structure. This improved economic conditions, and in the early 1980s, civil
order began to be restored, albeit at the cost of a flawed human rights environment. A new constitution was
approved in 1982 to curtail mounting international pressure. In the 1980s, the government of General Kenan Evren,
In 2001, Turkey underwent a series of cabinet changes and ended the year in an acute economic crisis. In the 2002
parliamentary elections, the AKP gained a majority in parliament with a landslide victory, and following a
constitutional reform, party leader Recep Tayyip Erdogan was elected prime minister in 2003. During 2002–2004,
parliament implemented a series of human rights reforms, with the aim of solidifying Turkey’s association with the
EU. In 2007, the AKP won the parliamentary elections again, and Abdullah Gul was elected president. In the same
year, parliament permitted military operations in Iraq in pursuit of Kurdish rebels, and towards the end of 2007,
launched a series of air strikes on fighters from the Kurdish PKK movement in Iraq. In 2008, the government began
the five-year long trial of several military officers accused of plotting to overthrow the AKP government through a
secular secret organization called Ergenekon. Most of the defendants received hefty jail sentences.
Since 2009, the AKP government and PKK rebels have made efforts to resolve the three-decade conflict. In July 2009,
Prime Minister Erdogan held a meeting with the leader of the pro-Kurdish Democratic Society Party (Demokratik
Toplum Partisi), Ahmet Türk, as part of efforts to solve the Kurdish problem. In December 2009, the government
introduced measures in parliament to increase Kurdish language rights and reduce the military presence in the
Kurdish southeast, as part of its Kurdish initiative. Although fighting between the Turkish military and PKK rebels
continued, the rebels indicated their willingness for a truce in 2010. Subsequently, Abdullah Ocalan, the jailed leader
of the rebel group, ordered his troops to cease attacks in Turkey, with the military leader of the rebel group, Murat
Karayilan, declaring a ceasefire and announcing that its rebels would begin withdrawing from Turkey to northern
Iraq from May 2013 onwards in exchange for political reforms. However, the process hit several roadblocks, with
differences creeping in between the two sides. In the 2011 general elections, the AKP were victorious and Recep
Tayyip Erdogan was re-elected as the prime minister for a third time. Erdogan, the former prime minister, won the
presidential elections held in August 2014 and became the president, while Ahmet Davutoglu became the prime
minister. In the November 2015 general election, the AKP gained a landslide victory by regaining a majority in
parliament. After the inconclusive June 2015 poll, the November result ended months of uncertainty about the
formation of a government. Ahmet Davutoglu reassumed his position as the prime minister. In May 2016, Binali
Yildirim became the 27th prime minister of Turkey, following the resignation of Ahmet Davutoglu. A failed coup
d'état attempt took place in Turkey on July 15, 2016 by a fraction of the Turkish Army.
On April 16, 2017, the Turkish people validated a change from a parliamentary to presidential system, which granted
President Erdogan expansive powers. Erdogan secured a narrow victory in the historic constitutional referendum
with a margin of less than 3%. In July 2018, Erdogan won the presidential election and Turkey completely changed to
a presidential republic. In April 2021, in a mass trial, 497 defendants were sentenced to jail for life for their role in
the failed coup of 2016.
Recep Tayyib Erdogan is the current president of Turkey, in office since 2014. He is the
founder of the Justice Development Party (AKP) and previously served as prime minister
of the country and Mayor of Istanbul.
In April 2017, the Turkish people validated the change of government type from parliamentary to presidential in a
referendum. Currently, Turkey is a presidential democracy.
Legislative power is enshrined in the 600-seat unicameral Grand National Assembly of Turkey, comprising members
of parliament elected for a five-year term. Turkey has a multi-party system, with several different political ideologies
represented across the various factions.
The president is the head of state and is directly elected every five years by the people. Executive power lies with the
president.
Composition of government
In June 2018, a legislative election was held, which saw the AKP win 295 seats, followed by the CHP (146 seats), the
HDP (67 seats), the MHP (49 seats) and other (43 seats).
IYI, 43
MHP, 49
HDP, 67
AKP, 295
CHP, 146
Economic
The country has followed sound macroeconomic strategies in combination with strong fiscal and monetary policies
to manage economic progress and attract more foreign direct investment. However, the country remains vulnerable
to external shocks, mainly due to its high current account deficit, which is financed by volatile short-term portfolio
flows and rapid credit growth in the domestic economy. President Erdoğan has been widely criticized for keeping the
interest rate at record low levels, which has led to double digit inflation, and forced the lira to a record low.
The government’s privatization program of state assets has recorded progress. The government also plans to
promote domestic savings, boost the output of intermediate goods to improve the economy’s export-
competitiveness, and reduce the country’s energy dependence by promoting the development of alternative energy
sources. According to “Vision 2023”, Turkey aims to achieve US$500bn of goods exports. In March 2020, Turkey
launched a 21 point stimulus package (Economic Stability Shield) worth US$15.4bn to deal with the COVID-19
pandemic, including various measures such as: three month deferral of loan payments, social security premiums
deferred by six months, and the Credit Guarantee Fund limit increased from TRY25bn (US$2.98bn) to TRY50bn
(US$5.95bn), among others. The country announced a total of US$73.56bn (equivalent to 11.5% of GDP) of stimulus
packages to keep the economy afloat amid the COVID-19 pandemic. In December 2020, the government passed the
budget for 2021. In the budget for the year, a majority share has been allocated to education expenditure.
Foreign
Turkey faces foreign policy challenges, mainly due to turmoil in the Middle East, which has severely affected the
country’s international standing, and strained its ties with Syria, Egypt, Israel, and Iraq, and traditional allies in the
West. Tensions with Syria have been high since 2011, with the Turkish government pressing for the resignation of
President Bashar al-Assad. Turkey has been sheltering over 2.5 million refugees from the conflict in camps in the
southeast of its territory. Turkey joined the US-led air campaign against IS in August 2015. However, it opposed US
support for Syrian Kurdish forces fighting IS, out of fear that such an act might lead to the establishment of an
autonomous, Kurdish-controlled area, which would fuel instability in Turkey's own predominantly Kurdish southeast.
Turkey’s relations with Russia and Iran have improved since the end of 2016 after decades of conflict. Cooperation is
based on their common stance on Syria and their respective counterterrorism campaigns. EU relations have taken a
new course due to the migrant crisis. Turkey has offered its cooperation in the form of curtailing the movement of
Syrian refugees to Europe in return for financial support and the liberalization of visas for Turks wanting to travel to
the EU. Turkey’s affiliation with NATO is also under pressure because of its growing tension with the US and the
growing relations with Russia and Iran. In June 2019, Turkey and Canada signed a MoU to increase cooperation in
the areas of trade, investment, industry, and services. In July 2019, Turkey and Indonesia signed a MoU to increase
their cooperation in the areas of social security, disaster management, and welfare programs. In August 2019,
Turkey and Iran signed a MoU to increase border cooperation. In February 2020, Pakistan and Turkey signed two
MoUs to increase the level of economic engagement between the countries and mobilize unexploited potential to
grow trade and investments. In August 2020, Libya and Turkey signed a MoU to boost trade and economic ties and
development projects in Libya. In November 2020, Turkey and Russia signed a MoU to set up a joint Turkish-Russian
center to monitor the Karabakh peace deal, which has led to the end of the conflict between Azerbaijan and
Armenia.
In April 2021, the US formally removed Turkey from the new F-35 memorandum of understanding. The F-35 program
is a deal among non-NATO members or Israel, Australia, Japan, South Korea or New Zealand and the US, under which
the US will supply sophisticated military technology. The removal of Turkey comes after its purchase of the S-400
ground-to-air missile systems from Russia.
The World Bank report on governance uses voice and accountability, political stability and absence of violence,
government effectiveness, regulatory quality, rule of law, and control of corruption as indicators for 215 countries
and territories over 1996–2019. Daniel Kaufmann of Brookings Institution, Massimo Mastruzzi of the World Bank
Institute, and Aart Kraay of the World Bank Development Economics Research Group conducted the study. For any
country, a percentile rank of zero corresponds to the lowest possible score, and a percentile rank of 100 corresponds
to the highest.
Turkey was ranked in the 24.63 percentile in terms of voice and accountability in 2019, much lower than Greece's
score of 77.34 during the same year. Voice and accountability measures the extent to which a country's citizens are
able to participate in selecting their government, alongside freedom of expression, freedom of association, and
freedom of the media.
Turkey was ranked in the 10.00 percentile in terms of the political stability and absence of violence indicator in 2019,
much lower than Greece, which scored 57.14 during the same year. Political stability and absence of violence
measures perceptions of the likelihood of destabilization of the government by unconstitutional or violent means,
including domestic violence and terrorism.
Turkey was ranked in the 54.33 percentile in terms of the government effectiveness indicator in 2019. Turkey’s rank
was lower than Greece, which was ranked in the 66.83 percentile. Government effectiveness measures the quality of
public services, the quality of the civil service and the degree of its independence from political pressures, the quality
of policy formulation and implementation, and the credibility of the government's commitment to such policies.
Turkey was ranked in the 54.81 percentile in terms of regulatory quality in 2019. By comparison, Greece had a score
of 70.67 during the same year. Regulatory quality measures the ability of the government to formulate and
implement sound policies and regulations that permit and promote private sector development.
Turkey was ranked in the 44.71 percentile in terms of the rule of law indicator in 2019. Turkey’s rank was lower than
Greece, which had a percentile rank of 60.58 during the same year. Rule of law measures the extent to which agents
have confidence in and abide by the rules of society. It also looks at the quality of contract enforcement, the police,
and the courts, as well as the likelihood of crime and violence.
Turkey was ranked in the 44.71 percentile in terms of control of corruption in 2019, lower than Greece, which had a
percentile rank of 56.25. Control of corruption measures the extent to which elites and private interests exercise
public power for private gain, including both petty and grand forms of corruption, as well as the appropriation of the
state.
4.5. Outlook
In July 2018, Erdogan won the presidential elections. The US has imposed sanctions on Turkey in 2020, as a reaction
to Turkey’s purchase of S-400 missiles from Russia. Greece and Turkey are also in a tense standoff, with Ankara
currently facing off against Greece and Cyprus over oil-and-gas exploration rights in the eastern Mediterranean, as of
August 2021. Both the countries deployed naval and air forces to assert their claim over the region in August 2020.
The palpable tension in the region indicates the potential for political instability in the near-term. In early 2021,
Turkey has also indicated it expects to introduce a new constitution, where fundamental rights and liberties, the rule
of law, and democracy will be a priority.
5.1. Summary
According to MarketLine, Turkey is a middle-income economy which had a nominal GDP per capita of US$8,553.8 as
of 2020. The country is currently transitioning from a high degree of reliance on the primary and secondary sectors
towards the tertiary sector. Prudent policymaking since the turn of the millennium has helped the country to record
high economic growth and maintain the sustainability of public finances. However, economic growth has also
contributed to Turkey experiencing a current account deficit, which has become a source of vulnerability for the
economy and its national currency. In 2019, the country witnessed a current account surplus due to improvements
in exports, although it fell into deficit in 2020 amid the COVID-19 pandemic. However, overall GDP growth witnessed
a rise in 2020, mainly due to heavy emphasis on expanding credit channels and loose monetary policy.
5.2. Evolution
5.2.1. 1923–1990
The Turkish economy suffered during World War I, primarily due to the underdeveloped agricultural sector and
poor-quality livestock that the country possessed. Turkey was dependent on a few factories under foreign control for
certain provisions, such as sugar and flour. Prior to 1923, the economy was in disarray, with agricultural output at a
low point. During 1923–1985, the economy’s growth rate accelerated due to the implementation of proactive
government policies that gave rise to more sustainable agricultural, industrial, and service production. After 1950,
the country experienced economic disruptions, and in the 1970s, witnessed a balance of payments crisis. Following
inadequate structural reforms, Turkey was left with current account deficits, which it financed through international
borrowings, that led to an increase in the country's external debt. The government failed to take sufficient measures
to tackle the increase in world oil prices during the 1970s and accepted short-term loans from foreign lenders. With
the rise in inflation and unemployment, it found it difficult to repay the interest on these loans. During the 1980s,
the government initiated a liberalization program that helped Turkey to overcome its balance of payments crisis.
The Turkish economy faced a crisis in the 1990s, primarily due to a significant increase in inflation. This surge was
followed by a rise in imports and a slowdown in the expansion of exports. Annual inflation stood at 54.4% during
2001 as the lira continued to suffer at the hands of international investors. With little social protection and the
presence of a large informal sector that absorbed millions of workers into marginal and low paid jobs, the real rate
of unemployment was probably far higher. As falling domestic demand helped to contain import growth, the current
account balance surged from a deficit equivalent to 3.63% of gross national product in 2000, to a surplus of more
than 1.88% in 2001, according to the IMF. Public finances recorded an improvement during 2000–2004, as the IMF-
supported program of fiscal and structural reforms began to bear fruit.
During 2002, real output growth stood at 6.45%, according to MarketLine. Turkey's economic performance improved
significantly in 2004 and in 2005, with growth averaging 9.39%. The country registered strong economic growth,
averaging 7.17% during 2002–2007, according to MarketLine. This period was observed following a contraction of
5.75% in 2001, after which the country adopted an IMF-supported fiscal and financial reform program until 2008.
GDP growth fell to 0.82% in 2008, followed by a 4.8% contraction in 2009, due to the global economic crisis.
12.0
10.0
8.0
Growth Rate (%)
6.0
4.0
2.0
0.0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Year
The Istanbul Stock Exchange (ISE) is the primary securities exchange in Turkey, formed to provide trading in equities,
bonds, and bills, as well as foreign securities and real estate certificates (among other international securities), to all
domestic and foreign participants. Securities are traded through three exchanges: equities and fixed-income
securities are traded on the ISE; futures contracts are traded on the Turkish Derivative Exchange; and precious
metals on the Istanbul Gold Exchange. The ISE, founded in 1985, is the only official market for shares, rights, global
depositary receipts, derivatives, and bonds trading in Turkey for retail and institutional investors. The securities
traded on the ISE markets include equities, exchange-traded funds, government bonds and treasury bills, corporate
bonds, and repo and reverse repo. The securities traded on the equity market include rights coupons. Government
bonds and treasury bills are traded on the bonds and bills market. There are two sub-markets within the bonds and
bills sector: purchases and sales, and repo/reverse repo markets.
160000
150000
140000
130000
Index
120000
110000
100000
90000
80000
Jun-20
Jun-21
Jan-20
Jan-21
Feb-20
Aug-20
Sep-20
Feb-21
Oct-20
Dec-20
Mar-20
May-20
Jul-20
Nov-20
Mar-21
Jul-21
Apr-20
Apr-21
May-21
Year
5.4. Performance
Overview
Turkey's economic performance was robust in 2004 and in 2005, with growth averaging 9.39% and inflation falling to
single digits. The country recorded strong economic growth averaging 7.17% during 2002–2007. This period was
observed after a contraction of 5.75% in 2001, after which the country adopted an IMF-supported fiscal and financial
reform program until 2008. GDP growth fell to 0.82% in 2008, followed by a contraction of 4.82% in 2009, due to the
global economic crisis. However, the resilience of the Turkish financial market and positive developments in the
economy enabled the country to report growth of 8.43% in 2010 and 11.2% in 2011. Monetary tightening, that
began in the second half of 2011, resulted in growth declining to 4.79% in 2012, due to a shrinkage in domestic
demand. Growth recovered to 8.49% in 2013 before slowing to 4.94% in 2014. However, it stood at 6.08% in 2015 on
the back of a slowing global economy. The economy then grew by 3.32% in 2016 and 7.5% in 2017 because of
stronger domestic demand. In 2018, monetary tightening in the US put decreasing pressure on the Turkish lira. The
high current account deficit aggravated the situation, and the Turkish lira witnessed a large depreciation. This
situation, along with a high level of inflation, dampened economic growth to 2.96% in 2018 and 0.92% in 2019. In
2020, due to the COVID-19 pandemic, the government introduced various fiscal stimulus measures to support
business operations and consumption expenditure by households. Monetary policy was significantly relaxed to allow
greater liquidity in the economy. As a result, GDP grew by 1.79% in 2020. According to MarketLine, GDP growth is
expected to pick up further by 5.7% in 2021.
1.8 8.0
1.6 7.0
1.4
6.0
1.0
4.0
0.8
3.0
0.6
2.0
0.4
0.2 1.0
0.0 0.0
2016 2017 2018 2019 2020 2021f 2022f 2023f 2024f 2025f
Year
Real GDP (LHS) Real GDP Growth Rate (%)
According to MarketLine, the services sector was the largest contributor to the Turkish economy in 2020, accounting
for 62.14% of GDP. The industrial sector generated 30.76% of GDP, and the agricultural sector generated the
remaining 7.1%.
Agriculture,
7.10%
Industry, 30.76%
Services, 62.14%
350.0 30.0
300.0 25.0
250.0 20.0
150.0 10.0
100.0 5.0
50.0 0.0
0.0 -5.0
2016 2017 2018 2019 2020 2021f
Year
Agriculture Output (LHS) Growth Rate (%)
1.6 25.0
1.4
20.0
1.2
1.0
15.0
TRY Tn
10.0
0.6
0.4
5.0
0.2
0.0 0.0
2016 2017 2018 2019 2020 2021f
Year
Industry Output (LHS) Growth Rate (%)
3.5 25.0
3.0
20.0
2.5
15.0
1.5
10.0
1.0
5.0
0.5
0.0 0.0
2016 2017 2018 2019 2020 2021f
Year
Services Output (LHS) Growth Rate (%)
According to the IMF, the country recorded general government net borrowing of 5.4% of GDP in 2020, narrowing
from 5.6% in 2019. However, this is forecast to expand to 5.7% in 2021.
According to MarketLine, Turkey’s exports and imports amounted to US$193.3bn and US$238.4bn in 2020,
respectively. According to the UN Comtrade Database in 2020, Germany was Turkey’s largest export market with a
share of 9.4%. Among the other leading export partners were the UK (6.6%), the US (6.0%), Iraq (5.4%), and Italy
(4.8%). In 2020, Turkey’s key import partner was China, which accounted for 10.5% of the market, followed by
Germany (9.9%), Russia (8.1%), and the US (5.3%).
548.91
600.0
531.67
514.42
497.17
493.41
482.12
479.92
481.99
500.0
431.62
421.35
400.0
US$ Bn
276.6
272.3
269.1
264.8
262.6
258.0
261.6
254.0
252.9
246.5
300.0
243.1
245.0
238.4
237.2
235.4
233.4
226.7
217.2
194.7
193.3
200.0
100.0
0.0
2016 2017 2018 2019 2020 2021f 2022f 2023f 2024f 2025f
Year
Exports Imports Total Trade
Current account
A high level of current account deficit is one of the major problems for the Turkish economy. However, in 2019, the
country moved to a current account surplus of 0.89% of GDP, compared to a deficit of 2.8% of GDP in 2018,
according to the IMF. According to the IMF, Turkey’s current account deficit in 2020 rose to 5.1% of GDP amid the
COVID-19 pandemic.
Credit rating
In August 2020, the credit rating agency Fitch Ratings downgraded Turkey’s Long Term Issuer Default Ratings (LDRs)
to BB-, changing the outlook to negative from stable, as a result of depleting foreign exchange reserves and a
deepened current account deficit due to of heavy stimulus packages announced by the government to combat the
COVID-19 pandemic.
Regulation
The CBRT is responsible for the implementation of monetary policy. One of the main objectives of the current policy
is to maintain price stability.
Inflation
Turkey has traditionally witnessed high inflation, although it has gradually come under control over the past few
years. In the 1990s, the annual inflation rate averaged 77.2%, and then 43.9% during 2000–2003. However,
restrictive monetary policies and high interest rates helped lower inflation to 8.59% in 2004. During 2005–2019, the
country’s inflation rate stood at 9.4%. According to MarketLine, the inflation rate declined to 12.3% in 2020, but is
expected to be 16.1% in 2021.
500.0 17.0
450.0 16.0
400.0 15.0
350.0 14.0
Consumer Price Index
300.0 13.0
Percentage (%)
250.0 12.0
200.0 11.0
150.0 10.0
100.0 9.0
50.0 8.0
0.0 7.0
2016 2017 2018 2019 2020 2021f 2022f 2023f 2024f 2025f
Year
Consumer Price Index (LHS) Inflation (%)
5.4.6. Unemployment
According to MarketLine, the unemployment rate averaged 10.25% during 2007–2018. In 2019, the unemployment
rate stood at 13.7%. According to MarketLine, the unemployment rate decreased to 13.1% in 2020. The
unemployment rate among the country’s youth (percentage of the total labor force between 15 and 24 years old) is
very high in Turkey. MarketLine expects the unemployment rate to decline further to 12.4% in 2021 as economic
activity picks up pace.
5.5 14.0
13.5
5.0
13.0
4.5
Total Unemployment (Millions)
12.5
3.0 10.5
10.0
2.5
9.5
2.0 9.0
2016 2017 2018 2019 2020 2021f 2022f 2023f 2024f 2025f
Year
5.5. Outlook
Although the Turkish economy has public finances in place, and its banking sector is well-capitalized and profitable,
risks stemming from its vulnerability to external shocks are high. The main reason for this vulnerability is the private
sector’s dependence on foreign currency debt and the large current account deficit. Although the country posted a
current account surplus in 2019, its depreciating currency and subdued international demand due to the COVID-19
pandemic pushed the current account to deficit during 2020. The economy is heavily dependent on volatile portfolio
capital inflows to meet its large external financing needs. This makes the country susceptible to financial market
speculation about the effects of tighter global liquidity caused by a rise in expected US interest rates. The
geopolitical stress caused by the regional conflict and rising tensions with the US are expected to weigh on the
country’s economic performance over the medium-term.
6.1. Summary
Turkey has a relatively young population when compared to its European peers. A significant proportion of
healthcare services are provided by the public sector. Nevertheless, the government must continue to improve the
country's healthcare and education services to tackle its high infant mortality rate and poor learning outcomes.
However, the COVID-19 pandemic has taken a toll on the country’s healthcare sector. According to the ‘World Press
Freedom Index 2021’, Turkey was ranked 153rd out of 180 nations.
6.2. Evolution
Turkey’s social landscape has undergone various alterations in keeping with the changing political, economic, and
social order. In the post-war years, the priority for the government was the resettlement of its population. Turkey
recorded an increase in emigrants to Western Europe after World War II due to excess demand for labor, while after
the fall of the Berlin Wall it became a target for immigrants, who migrated from the former Soviet Union countries
and other Muslim states.
Healthcare was run by the Ministry of Health through a centralized state system until 2003, after which the AKP
introduced reforms aimed at increasing the ratio of private-to-public healthcare provisions, in order to fulfill the
ultimate goal of providing universal healthcare. The Turkish education system, which dates back to the passage of
the Law of Integration of Education No. 430 in 1924, mandated compulsory education for five years until 1997. The
1997 reforms increased the duration of compulsory education to eight years, while the 2012 reforms extended
compulsory education to 12 years.
The majority of the population is Muslim. According to the CIA World Factbook, in 2018, 99.8% of the Turkish
population was Muslim, while the remaining 0.2% was Christian and Jewish.
Others, 0.20%
Muslim, 99.80%
6.3.3. Education
Turkey’s educational system consists of two categories: formal education and non-formal education. Formal
education refers to the standard tuition provided within schools for individuals of a certain age group; these schools
are divided into pre-primary, primary, secondary, and higher education institutions. Non-formal education refers to
training sponsored by the Ministry of Education outside the formal education system.
Pre-primary education is voluntary and is provided for children that are not yet old enough for compulsory primary
education, generally those between the ages of 36 and 72 months. The intention behind the pre-primary system is to
ensure the physical, mental, and emotional development of the children, and to train them for primary education.
In 2003, with the help of the International Bank for Reconstruction and Development, the Turkish government began
the Health Transformation Program (HTP), a 10-year initiative. The program improved health utilization rates and
access to Universal Health Coverage (UHC). A new pay-for-performance program was also introduced to all 850
government hospitals. In January 2010, the government launched Health-NET, an integrated information system to
improve the efficiency and quality of health services in the country. As a result, public health centers were converted
into family health centers to harmonize the country’s healthcare system with the EU system. To further improve
healthcare coverage in Turkey, the government has assigned new staff to areas with a low density of doctors. The
increasing level of Syrian refugees is causing a risk to the health sector as well. Healthcare tourism in Turkey has
increased in recent years. According to the Turkish Travel Agencies Association, the number of health tourists visiting
Turkey increased by 27.35% in 2018. The foreigners spent on average US$2,000 per head on health tourism in 2018.
On September 7, 2020, the country announced additional state payments to the personnel working in the health
facilities affiliated with the Health Ministry, which were extended by three months as of August 1, 2020. In August
2021, Libya and Turkey signed a memorandum of understanding (MoU) on cooperation on hospital management,
short-term training of medical staff, development of medical services, and combating the COVID-19 pandemic.
6.4. Performance
6.4.1. Healthcare
Turkey has improved the healthcare services provided by hospitals by importing medical equipment, and the
government is encouraging foreign companies to invest in the healthcare industry. Turkish private hospitals, which
have been improving their medical facilities, charge less than those in other European countries and consequently
have admitted an increasing number of patients from European and Middle Eastern countries. Nevertheless, the
healthcare system in general lags behind other countries. According to MarketLine, total healthcare expenditure
stood at 6.1% of GDP in 2020, compared to 4.4% of GDP in 2019.
44.0 6.5
42.0
6.0
40.0
5.5
38.0
Percentage (%)
US$ Bn
36.0
5.0
34.0
4.5
32.0
30.0 4.0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Year
Total Healthcare Expenditure (LHS) Total Healthcare Expenditure as a % of GDP
Turkey has a very inequitable society, with disparities in household income and a high concentration of poverty. The
absence of economic growth in the east could encourage migration to the large cities of the west, leading to urban
congestion. There are wide income discrepancies in Turkish society, with income per family varying widely between
major urban areas, such as Istanbul, Ankara, and Izmir, and the provincial towns and rural communities. Turkey has
not been successful in limiting disparities of income and wealth and restricting poverty. The country’s Gini coefficient
(a measure of income disparity, with zero corresponding to complete equity and 100 to extreme inequity) was 41.7
for 2019, according to EuroStat. It is an improvement from a Gini coefficient score of 43.3 in 2011.
6.4.3. Education
Literacy
According to MarketLine, Turkey had a literacy rate (15 years and above) of 96.4% in 2020. While the male literacy
rate was 99.2%, the female literacy rate was lower at 93.2%. The relatively low literacy rate for women is the result
of the feudal mindset that prevails in rural areas of the country.
Expenditure
The government’s educational expenditure amounted to 1.21% of GDP in 2020, down from 2.4% of GDP in 2011.
Turkey has a more centralized and less flexible system of education than most EU countries. The government intends
21.0 2.6
19.0 2.4
17.0 2.2
15.0 2.0
Percentage (%)
13.0 1.8
US$ Bn
11.0 1.6
9.0 1.4
7.0 1.2
5.0 1.0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Year
Public Expenditure on Education (LHS) Public Expenditure as a % of GDP
6.5. Outlook
The Turkish government has implemented policies to improve social benefits and quality of life. However, a large
number of structural changes are required to improve the quality of healthcare and education and reduce the
prevailing inequality. The social impact of the COVID-19 pandemic has exacerbated the already existing labor market
challenges that were already in place prior to it. The shock from the COVID-19 outbreak aggravated declining trends
in terms of labor force participation, accompanied by rising levels of unemployment.
7.1. Summary
Turkey aims to implement radical changes in the public service sector by introducing advanced technology, and is
also focusing on increasing productivity in the long run by allocating more resources to R&D. In December 2010, the
government approved the National Science, Technology and Innovation Strategy 2011–2016 to develop innovative
products, processes and services. According to MarketLine, R&D expenditure in terms of GDP stood at 0.98% in
2018, compared to 0.96% in 2017. On October 26, 2020, the Industry and Technology Minister announced that the
country will support investments in R&D and double the R&D budget of the Scientific and Technological Research
Council of Turkey in 2021. According to TurkStat, the government’s budget outlays on R&D activities stood at
TRY14.3bn (US$2.0bn) in 2020, most of which was directed towards universities for the general advancement of
knowledge.
7.2. Evolution
In 1994, several initiatives were undertaken with the aim of liberalizing the telecoms market through the enactment
of laws. Turkey formed Turk Telekom (a state economic enterprise) by implementing a new law, with the intention of
removing the government from the telecommunications services industry. Its implementation enabled it to privatize
telecoms companies. Internet service providers have also entered into service contracts with Turk Telekom.
The 1991 decree of state support for funding of industry R&D activity became effective in 1995, following the
adaptation of state incentives to conform with the requirements of the General Agreement on Tariffs and Trade
(GATT). Legislation on state support for R&D investments was implemented in 2000, with a view to provide loans for
the procurement of equipment for R&D activities by industrial companies. The following year witnessed the
introduction of the Technology Development Law to encourage the establishment of teknoparks by universities, to
promote industrial R&D among universities and research centers.
Telecom operators Ericsson and Huawei are driving the 5G rollout in Turkey. In 2020, Turkey published the National
Smart Cities Strategy and Action Plan for 2020–2023.
7.3.1. R&D
Turkey has generated significant growth in R&D over the years by implementing several related policies, which
include a national innovation strategy that emphasizes products of high value and the development of employment
levels through increased competitiveness, as well as various programs to encourage foreign participants, prominent
universities, and research organizations to promote a culture of innovation. The country entered into an agreement
with the Joint Research Centre, the EU's scientific and technical research laboratory, focusing on cooperation in the
key areas of environment and health, security, energy, agriculture, and chemicals. It also initiated a science and
technology project called “Vision 2023” during 2003–2023, under the coordination of the Scientific and Technical
Research Council and the Supreme Council of Science and Technology. A new law supporting R&D activities was
passed in parliament in mid-2008. It introduced incentives for investors that intend to make R&D investments until
7.4. Performance
The telecoms sector recorded increasing growth due to the expansion of the mobile market – the driving force
behind the development of telecommunications services in Turkey. According to MarketLine, the total number of
mobile users stood at 81.7 million in 2020, with a penetration rate of 98 per 100 people. Internet users stood at
76.6% of the total population, with a user base of 63.9 million in 2020.
70.0 14.0
60.0 12.0
50.0 10.0
Internet Users in Million
Percentage (%)
40.0 8.0
30.0 6.0
20.0 4.0
10.0 2.0
0.0 0.0
2016 2017 2018 2019 2020
Year
Number of Users (LHS) Percentage of Population
8.1. Summary
Turkey’s judicial system is tripartite at the levels of the first instance courts, district courts, and supreme courts. The
judiciary is decisively separated into civil and military jurisdictions. Both are split into two categories: ordinary and
administrative judiciaries. The judiciary is subject to influence and political interference in high-profile cases, and
there is a need to revise judicial reforms in order to introduce qualified judges and improve the infrastructure of the
legal system. Employment regulations are rigid and have been a cause of declining overall productivity growth.
According to the ‘Global Competitiveness Report 2019’, Turkey ranked 60th and 111th out of 141 nations in terms of
the burden of government regulations and the efficiency of the legal framework in challenging regulations,
respectively.
8.2. Evolution
In 1926, the Islamic law of the Ottoman Empire was substituted with a secular system similar to that of Italy. Since
2002, Turkey has recorded significant developments in the area of judicial reforms. In 2002, Turkey abolished the
death penalty and modified sections of its legal system. This was primarily achieved by the implementation of laws
related to criminal procedural and civil legal systems, as well as the establishment of regional courts of appeal and
the Justice Academy. With these revisions, several specialized courts were introduced to resolve disputes in the
areas of family, intellectual property rights, and consumer protection. The Ministry of Justice implemented an
advanced information technology system, the National Judicial Informatics System (UYAP), which focuses on
improving the judiciary’s ability to collect information and communicate with other governmental institutions.
Income tax
Personal income tax is generally levied by the central government. The base rate on wages is 15% and can increase
to a marginal rate of 40%. An individual who resides in Turkey for more than six months pays taxes based on their
worldwide income for that fiscal year. However, an emigrant who is on an assignment in Turkey for a business trip
and individuals who are in Turkey for holiday or educational purposes are not regarded as citizens, even if their stay
exceeds the stipulated six months.
Corporate tax
Corporate tax is charged on income and earnings derived by public and private limited companies, including foreign
and other joint venture companies. Turkey has increased the tax rate to 25% for 2021, then it will drop again to 23%
in 2022, compared to the previous 20% tax rate in 2020.
VAT
Goods that are imported into Turkey are subject to VAT. The VAT rate in Turkey is 18% for most goods and services
and 8% for foodstuffs and pharmaceuticals products as of 2021.
Turkey has introduced several reforms over the years and has formulated measures to combat unemployment. In
2003, the country implemented provisions for unemployment insurance and a new labor code (Act 4857) aimed at
providing social security for workers. Unemployment insurance was further strengthened through the improvement
of the employment opportunities offered by the Turkish Employment Agency (ISKUR), public employment
institutions, and other private providers. A government initiative to improve incentives for employment creation
that will widen the coverage of formal social protection for workers has been introduced.
Labor market regulations have been implemented in Turkey to encourage job opportunities and increase the
productivity of employees. Flexible working hours – which make it easier to arrange work schedules in accordance
with company needs – are common, and organizations have encouraged part-time employment. Employment
organizations in Turkey, such as the ISKUR, have initiated reforms to encourage and promote employment. These
include job brokering (matching job seekers with vacancies), improving the employment prospects of the disabled,
and monitoring the unemployment insurance program and private employment agencies.
8.4. Performance
The country has performed moderately well on international indicators which analyze the effectiveness of legal
processes. Turkey was ranked 76th out of 186 countries evaluated in the ‘2021 Index of Economic Freedom’,
published by the Heritage Foundation and the Wall Street Journal. In the World Bank’s ‘Doing Business Report 2020’,
8.5. Outlook
Turkey does not require any lengthy business registration processes to establish a company. The overall freedom to
start, operate, and close a business is protected by Turkey’s regulatory environment. Moreover, business taxes are
low compared to other developed countries. The country has also introduced electronic bookkeeping and invoicing,
which make paying taxes easier. However, some sectors are inaccessible or only partially accessible to foreign
investment such as broadcasting, and real estate. The government must open these sectors to allow FDI and
business expansion. The judiciary is subject to influence and political interference. Therefore, judicial reforms must
handle key structural issues in the system and resolve them through specialized courts or different appeal structures.
9.1. Summary
Turkey has been at the forefront of meeting various environmental challenges and has introduced policies to
increase the production of renewable power by compelling national transmission companies to provide grid
connection to all renewable projects. It has linked its development aid to environmental objectives and policies to
focus on air pollution, biodiversity, chemical substances, environmental health, and climate change. Nevertheless,
the country suffers from high levels of air pollution, as well as the depletion of water resources. The discharge of
chemicals and detergents into the water has led to an increase in environmental pollution, mainly in urban areas. In
the 2020 EPI, the country was ranked in 99th place out of 180 economies, with poor performances in terms of
environmental health and conservation of biodiversity. The country underperformed compared to its neighbors,
such as Greece and Bulgaria.
9.2. Evolution
Since the 1990s, ecological policies in Turkey have been undergoing reforms driven by EU environmental legislation.
The Ministry of Environment was formed in 1991, with a view to monitoring environmental issues, such as urban air
pollution, which poses a major threat to Turkey. In 2003, the merger of the Ministry of Environment with the
Ministry of Forestry reduced the authority of environmental officials in policymaking and enforcement procedures.
Because of Turkey’s impressive afforestation efforts, the National Afforestation and Erosion Control Action Plan
(2008–2012) improved 2.3 million hectors of degraded land.
Policy
In 2008, the government launched an annual environmental performance review to identify issues and subsequently
address them. In 2011, the Ministry of Environment and Forestry was split into the Ministry of Environment and
Urbanization, and the Ministry of Forest and Water Affairs. As part of its “Vision 2023” program, the country has
developed strategies on renewable energy, waste management, water treatment, and hydrogen technologies. In
October 2020, Istanbul became the first Turkish airport to receive a Zero Waste Certificate as a result of its efforts to
prevent waste and use resources efficiently.
In 2005, Turkey initiated a law that emphasized the use of renewable energy resources for electricity generation by
introducing tariff support for electricity produced by renewable sources. Turkey also introduced several policies to
increase the production of renewable energy by compelling national transmission companies to provide a grid
connection to all renewable power projects. Furthermore, it has undertaken initiatives to improve transmission links
with the EU to stabilize its power system and has removed the ban on several restrictions that could hamper foreign
investment in the power sector. Energy policies in Turkey aim to encourage private capital and the development of
international cooperation; several projects have been implemented to increase energy efficiencies in the industry,
transport, and residential sectors.
9.4. Performance
Strong economic growth in Turkey has increased environmental pressures, especially from the energy, industry,
agriculture, transport, and tourism sectors. Environmental challenges include air quality, water, waste management,
soil erosion, nature protection, and marine ecology. The country is faced with increasing levels of pollution due to
chemicals and detergents released into water sources and an increase in air pollution in urban areas. Water quality is
under severe pressure in coastal areas, predominantly due to the discharge of untreated or semi-treated municipal
and industrial wastewater into the sea. Furthermore, the discharge of pollutants by neighboring countries has
polluted the Black Sea.
The country also faces the problem of air pollution, which is acute in areas such as Istanbul, Ankara, Erzurum, and
Bursa. Increased car ownership and the slow growth of public transportation has significantly increased urban
pollution in Istanbul, while further air pollution is caused by energy plants and fertilizer facilities, as the majority of
these lack filtration equipment. According to BP’s Statistical Review 2021, CO2 emissions increased from 276.3
million tons in 2010 to 369.5 million tons in 2020.
450.0 12.0
400.0 10.0
350.0 8.0
300.0 6.0
Percentage (%)
Tons (Million)
250.0 4.0
200.0 2.0
150.0 0.0
100.0 -2.0
50.0 -4.0
0.0 -6.0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Year
Volume (LHS) Growth Rate (%)
At the same time, Turkey also faces land degradation due to the inappropriate use of agricultural land, overgrazing,
and deforestation, along with soil erosion on more than half of its land surface. According to the United Nations
Convention to Combat Desertification’s (UNCCD) 2018 statistics, Turkey loses 154 million tons of topsoil annually.
The low tax regime for fossil fuels is one of the main reasons for Turkey’s high level of air pollution and the low level
of investment in renewable energy sources.
In July 2021, forest fires broke out in Turkey that devoured huge swaths of land and brought about the large-scale
destruction of environmental resources.
9.5. Outlook
At the 2015 United Nations Climate Change Conference, the country’s Intended Nationally Determined Contribution
(INDC) stood at a 21% reduction in GHG gases by 2030. Other measures with regards to industry, transport,
infrastructure, waste management, and forestry are expected to be implemented. These will be effective in reducing
Turkey’s carbon footprint and reaching its stated targets. Turkey’s first integrated solar panel manufacturing facility
opened in August 2020 in Ankara’s Organized Industrial Zone. The facility will be operated through an investment of
US$400m at a 25-acre closed area. It is a big step towards the reduction of Turkey’s carbon footprint. With the
commissioning of the plant, solar energy’s share of electricity production in Turkey is expected to increase by 25%.
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