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Economic policy

From Ataturk to the 80s

In terms of industrial production, the Ottoman Empire was dependent on the European powers. It only had a poorly developed textile manufacture (production of raw silk and cotton) and had to import numerous products, even food. Trade and handicrafts were in the hands of the non-Turkish Christian population group, whose know-how was lost after the wars of liberation and expulsions.

Ataturk initially promoted a liberal economic policy. The state only invested in the expansion of the infrastructure (railway network, ports, utilities, mining). Nevertheless, the economy did not really get going (1927: 155 factories and only 27,000 industrial workers) and so the Turkish state saw itself compelled to take on important economic tasks statistically. This was understood to mean the establishment of state commercial enterprises in order to replace imports with their own production in the long term. With the help of Russian foreign loans, state-owned companies were established that dealt with the production of sugar, textiles, paper, glass, ceramics, cement, chemical products, iron and steel.

In this way, the state was able to achieve an increase in industrial production in the 1930s.

In the 1950s, agriculture experienced an upswing due to low-interest loans for agricultural products and the decrease with guaranteed prices. This led to an increase in the standard of living of the rural population, but made more and more workers available through mechanization.

Liberalization and opening to the world market

A radical change in economic policy is associated with the then Prime Minister Turgut Özal (1981-1993). He achieved an opening to the world market and accelerated rapprochement with the EU. Import bans were dismantled, export trading companies were set up, travel was eased and foreign investors were attracted. Liberalization led to an increase in export performance and to Turkey transforming from an agricultural country to an emerging country.

Another milestone for the economic upswing was Turkey's accession to the customs union on January 1, 1996. Associated with this was the removal of import bans, the liberalization of services (banks and insurance companies) and the harmonization of technical standards and regulations. This created a new export market for the EU and an increase in domestic demand and the export economy for Turkey. However, due to the rigid visa practice, many Turkish entrepreneurs find it difficult to gain access to the European market.

With the AKP, an economically liberal party has had government responsibility since 2001. Their policies temporarily led to an increase in economic growth to around 10% (2014: 3-4%) and to a significant increase in the standard of living of the entire population. A new "green" entrepreneurship with an Islamic self-image has also emerged.

Economic data and trends

Since the economic crisis of 2009, Turkey can look back on steadily increasing economic growth. The upward trend brought Turkey a demand of between five and ten percent, which continues to this day. This was driven by massive government spending to promote consumption and investment while at the same time securing bank loans through government funds. Tax relief, price and interest subsidies should also stimulate the economy. An investment fund was set up to finance planned major projects. The 4% increase in private consumption also contributed to growth.

Time and again, however, short-term losses were recorded. In 2014, government measures to restrict credit temporarily dampened domestic demand by 5%. Politically induced turbulence (coup in July 2016, referendum in April 2017) as well as the current geopolitical and global risks also only caused minor difficulties for the Turkish economy. In 2017, growth of 7.5 percent was achieved again.

In 2018, turbulence emerged that hit domestic markets, companies and the population at a sensitive point: the decline in the value of their own currency. Inflation got out of hand because the Turkish central bank did not take any measures to support the lira on the advice of politicians. It was not until October 2018 that the key rate increase and other beneficial countermeasures were decided.

Further tendencies:

  • Chronically high current account deficit
  • Strong dependence on energy imports (more than 50% of the deficit)
  • Lack of efficiency in higher-quality economic sectors, partially limited global competitiveness, low local added value in production
  • Dependence on foreign capital flows (also due to low savings rate: 13% GDP)
  • Rising unemployment rate: 15% (2017), in the south-east 25%
  • High proportion of illegal work and low proportion of women in gainful employment

Turkey was seen as an attractive market for foreign investment. After the coup, foreign investors reacted temporarily cautiously. Turkish companies are active in Europe and around the world.

President Erdogan influences the central bank, which does not raise key interest rates. This has consequences for the Turkish lira and the socio-economic situation of the people in Turkey (3min20, German)

The Turkish currency crisis affects everyone: Citizens and companies (10min, German)

Economic regions

Western Turkey with the Marmara region and the Aegean Sea (Greater Istanbul, Bursa, Izmit) is strongly developed. The Istanbul region with around 20% of the population generates 40% of the total added value. The south-east and east of the country are underdeveloped, often marked by bitter poverty and economic backwardness.

In Central Anatolia, with the rise of the “Anatolian tigers”, the area around Konya and Kayseri developed economically - far removed from infrastructural conditions or the availability of raw materials. With the help of a strict work ethic and entrepreneurial leadership based on religious foundations, a religious-conservative middle class has developed. Many of these emerging companies have trade relationships with the Arab world and the Near and Middle East. They increased export values ​​6 times, while EU exports only increased 2.5 times.

The province of Gaziantep is also one of the climbers, which promotes economic commitment through business-friendly policies and the designation of industrial zones and thus contributes to the development of the area. Gaziantep orients itself in its trade relations with nearby Iraq.

Textile and clothing industry

This branch of industry is the most important in terms of value added, the number of employees and the export rate (30%). The main sales markets for textiles are Russia, Italy and Germany. It is noticeable that China has risen to 13th place among the customer countries (in 2008 it was 25th). Clothing made in Turkey is sold to Germany, Great Britain, Spain and France.

Large production facilities are located in Istanbul, Bursa, Denizli, Adana, Gaziantep, Karamanmaras, Kayseri, Antalya, Mersin and Malatya with a total of 3 million employees. The clothing industry is characterized by medium-sized companies with a lot of foreign investments, whereas the textile industry works almost exclusively with Turkish capital. Cotton, wool and synthetic fibers are produced, which are processed into fabrics or textiles for internationally known brands.

The industry got into enormous difficulties due to global competition. Cheap producers such as China and India put the Turkish market in great distress, resulting in closings and lower production rates. In some cases, Turkish companies also relocated their production facilities to the Far East. This led to an increase in the unemployment rate in a sector characterized by precarious income and insecure employment.

The textile and clothing sector was now faced with the challenge of overcoming the crisis by changing production and marketing strategies or by merging medium-sized companies. The orientation towards higher quality, modern design in connection with fast implementation and good logistics created a differentiation of the market in 2012. Double-digit growth rates have been achieved since 2013.

Turkish designers can now also be seen on international catwalks.

Automotive and its supplier industry

The Turkish automotive industry expanded strongly: currently around 400,000 employees work for 17 manufacturers and around 4,000 supplier companies. The production and export rate (3 out of 4) of vehicles, especially in the light vehicle sector (passenger cars, pick-ups and light commercial vehicles) is increasing sharply. Their share in total exports should reach 15%. Production of 4 million vehicles is targeted for 2023. The local share of added value in vehicle production is to be increased from 56% in the foreseeable future to 77% with the support of subsidy measures.

Automobile production is a relatively young industry. Fiat (Tofas) and Renault founded joint ventures in Istanbul and Bursa in the 1960s. Today, manufacturers such as Renault, Ford, Fiat, Hyundai, Toyota and Honda have had factories in Turkey for several years. As a rule, these are run as joint ventures with domestic partners. According to Invest in Turkey, they invested over $ 12 billion between 2000 and 2014. According to analysts' calculations, three of the country's top five exporters belong to the automotive industry.

 

 

 

Cars, minibuses and intercity buses, trucks and tractors are produced in Istanbul, Bursa, Ankara, Aksaray, Izmir and Izmit.

The iron and steel industry, as well as the rubber, plastic, glass, and automotive supplier and automotive accessories industries, with around 200 foreign equity investments, also benefit from the expansion of production capacities. Their investments are increasing and predict an upturn in the supplier industry. The associated logistics are currently also being expanded. Germany is the largest export recipient of automotive parts.

The production and sales of electric cars are still in their infancy, but the plans are ambitious. The first Turkish electric vehicle is expected to be on the road in 2021.

Electrical industry

More than 50,000 people work in the electrical industry, mainly in Manisa, Bursa, Izmir and Istanbul. The industry is expanding primarily into telecommunications, computers and consumer devices. It not only produces for local manufacturers such as Arcelik, Vestel, Beko and Profilo, but also for international electronics companies such as Toshiba, Sanyo, Siemens, Bosch, Nokia, JVC, Phillips and the Italian group Merloni. Today more than a third of the TV sets sold in Europe come from Turkey, even if the domestic market is currently weak. The export of refrigerators and stoves far exceeds the import. However, the production of electrical systems had to cope with a slight decline.

International companies in the IT industry are discovering Turkey as a regional center. In order to further promote the development, the government wants to build special technology parks for the industry, so-called IT valleys.

Agriculture

In the founding years of the Turkish Republic, the country was an agricultural state. Large areas and climatic conditions favored this. In the 1990s, agricultural yields increased due to modernization and mechanization. Nevertheless, the share of the primary sector has fallen from over 26% to 11% since 1980, while the shares of industry and services have increased significantly. This is also noticeable in the export area. Today the share of agricultural goods is only 10%, in 1950 it was 93%.

Tea, tobacco, wheat, barley, poultry, eggs, fruit and vegetables are grown and produced in Turkey. Turkey is the world's largest major producer of nuts and fruit. The country also ranks 5th in the world with agricultural land for greenhouses.

The subject of biotechnology is also causing controversy in Turkey.

Tourism is an important economic sector in Turkey and one of the most important sources of foreign exchange. The largest national group among tourists to Turkey is made up of around 4.4 million Germans, followed by Russians (2.8 million) and British (2.2 million). There are also around 3.6 million domestic tourists.

In 2016 the number of international guests fell. Due to the Russian-Turkish crisis and the terrorist attacks, fewer tourists visited the country. Numerous cruise ships withdrew Turkey from their offer for 2016, and the political rapprochement between Russia and Turkey increased the number of Russian visitors from February 2017.

The tourist centers are the southern Aegean coast, the Turkish Aegean (3.2 million visitors) and the Turkish Riviera between Antalya and Cape Anamur (3.2 million). In 2014, 11.8 million guests came to Istanbul. Health tourism, which is being promoted by the government, is likely to provide further impetus. An increase in Chinese vacationers is also expected in 2019.

Financial sector

In 2001 Turkey experienced a severe financial and economic crisis and associated with it was a severe recession. The Turkish lira lost value, national debt rose, interest rates rose and real wages for workers fell. Many small and medium-sized enterprises perished and over a million workers lost their jobs. With the help of the IMF and a strict reform and austerity course, Turkey managed to overcome the crisis and return to economic stability under its Finance Minister at the time, Kemal Dervis. Turkey survived the global financial crisis of 2009 almost unscathed. No bank had to be supported by government aid - a consequence of the 2001 crisis, when more than half of the commercial banks had to leave the market.

The 2014 AKP corruption scandal shook the confidence of the financial markets. The Turkish lira repeatedly slipped to a record low in trading with the US dollar. Turkish government bonds were also hit by the turmoil. They came under selling pressure after the temporary withdrawal of foreign investors.

In the short term, the coup in 2016 and the political unrest after the constitutional referendum also caused turbulence on the financial markets.

energy

The economic upturn and increasing population rates are increasing the energy demand in Turkey (doubling of the primary energy demand between 2001 and 2014). This in a country that has no sources of energy besides poor quality coal and hydropower. The energy demand (more than two thirds) is covered by imports. Oil comes from Azerbaijan, Northern Iraq and the Middle East. 60% of the energy imported consists of Russian natural gas. Russia is currently planning to turn Turkey into a distribution center for gas supplies from Russia to Europe due to the conflict with Ukraine.

Turkey currently also favors its own projects. With TANAP she wants to ensure that natural gas from Azerbaijan reaches Turkey and Europe. This southern gas corridor is intended to help diversify one's own energy supply without crossing Russia. Turkey is also relying on cooperation with the Kurdish regional government in Erbil (Northern Iraq). From 2017, 4 billion cubic meters of gas are expected to reach Turkey every year.

The share of renewable energies (wind, solar, geothermal) has increased the most in recent years compared to other energy sources. Turkey also relies on nuclear power. With the help of Russia, the first plant is being built in Akkuyu in southern Turkey, which is scheduled to go into full operation in 2023.

Trading partner

Germany is an important Turkish trading partner. A double taxation agreement between Turkey and Germany came into force in 2011. Most Turkish goods are exported to Germany (EUR 16 billion), mainly in the areas of clothing, cars and car parts, machines, metal products. Great Britain (USD 983 million), Italy (USD 871 million) and Iraq (USD 855 million) follow in second place.

In terms of imports, Russia ranked first with a volume of USD 1.7 billion. Germany was in second place with 1.5 billion.USD - ahead of China with USD 1.3 billion and the USA with an import volume of USD 1.1 billion.

Social tendencies

Working conditions in Turkey

The working conditions in Turkey are far from what is reality elsewhere: a week of 45 hours, Saturday as a regular working day and 12-24 days of vacation - depending on the length of service. Many work in unsecured employment relationships, with no contract and no enforceable rights.

Health and safety at work is also poorly anchored and the media repeatedly report on accidents at work in connection with inadequate or non-compliance with safety regulations, e.g. 22 people lost their lives in Turkish shipyards in 2008 (in Germany: 2 people, in Great Britain: 1 person).

A mining accident in Soma in western Turkey in May 2014 caused great shock, in which more than 300 people were killed. The rescue operation was accompanied by demonstrations against the operating company and the government, which were held responsible for the fact that greed for profit prevented the implementation of effective controls and that there was a lack of political will to comply with safety regulations.

This means a great challenge for the unions to improve the situation of the workers. The most important trade union federations are Türk-IS, DISK; HAK-IS, KESK. After years of discussion, a new trade union law was passed in 2012. Important changes should in particular relate to the facilitation of union membership, an improvement in protection against dismissal due to union membership and the revision of the determination of the eligibility for a collective agreement. Trade union federations are dissatisfied with the result and see a clear deterioration.

Development and development cooperation

State development plans

Strategies to increase competitiveness and the employment rate are on the agenda of the State Planning Organization, which is now called the Ministry of Development. The aim is to improve people's living conditions and the quality of social security systems. Another focus is on the development of the regional area. Last but not least, the efficiency of the public service is to be increased.

Behind this is the vision of “Turkey, a country of information society, growing in stability, sharing more equitably, globally competitive and fully completed her coherence with the European Union”. Nevertheless, the projects are geared towards 2023, when the founding of the republic will be 100 years old.

Multilateral development cooperation

The eight UN Millennium Goals called on the governments of the countries to make increased efforts to reduce poverty and promote development. The 2010 progress report showed that Turkey is doing well. In particular, the death rate of children (goal 4) and mothers (goal 5) fell sharply. The issue of gender equality (goal 3) should be viewed with absolute criticism. The situation of women with regard to participation in the labor market, education and health remained in great need of improvement. Regional and social disparities also continue to characterize the picture, e.g. is the school attendance rate in the southeast and among girls lower than in the west and among boys. The poor performance of the state social security systems and the lack of coordination between the state actors involved exacerbate the causes. In 2016, a UN study confirmed that Turkey still has strong disparities in social, economic and regional terms.

In 2016, the Sustainable Development Goals were adopted, which are intended to ensure sustainable development on an economic, social and ecological level. In 2019, Turkey ranks 79th out of 162 countries.

International actors

The World Bank's Turkey Program supports development measures in the following areas: energy, financing options in the private sector, urban development, transport, social disparity, labor market, health, competitiveness, education. A major focus is on the integration of the high number of Syrian refugees while at the same time developing social spaces.

The IMF has also supported Turkey for a long time in the form of loans - with more than USD 46 billion over the past 50 years. Turkey has been debt free since 2013. Your role has changed from recipient to supporter. To rescue the euro crisis, the Turkish government agreed in June 2012 to provide 5 billion dollars.

Other UN organizations are active with different activities in Turkey: UNFPAUNAIDS, IOM, UNDP, UNHCR, FAO, ILO, WHO, UNIC, UNIDO, UNICEF.

Bilateral cooperation: Germany-Turkey

German-Turkish cooperation began in 1958. To date, more than 3.7 billion euros in support have been provided. Over the decades, the focus of the cooperation changed. In the 60s / 70s the focus was on investments in industry and energy, in the 80s efforts were directed towards the improvement of a municipal environmental infrastructure. In the 1990s, the south-east was looked at to encourage the development of the neglected area. Today the approach to European standards is the focus of efforts. Together with the Turkish partners, municipal environmental infrastructures are promoted, efficient administrative structures are set up and small and medium-sized businesses are promoted.

The bilateral cooperation ended in 2008. Since then, the majority of the activities on the German side have been linked to EU projects that, among other things, support Turkey's EU accession process. GIZ is currently implementing projects in the areas of "sustainable infrastructure, governance and democracy, environmental protection and climate change, economic growth and employment".

The GIZ project "Qudra" supports the Turkish government and its administrations in dealing with the refugee crisis. The focus is on support

  1. better infrastructure in schools,
  2. professional qualification,
  3. strengthening social cohesion,
  4. strengthening local administrations,
  5. promoting the supraregional dialogue between refugees and host communities.

To this end, the EU and Germany are significantly increasing their development aid budgets.

KfW-Bank has been by far the largest bilateral financier in the municipal infrastructure sector in Turkey for many years. More than 100 projects with a total volume of over 4.7 billion euros have been approved in the last 50 years in the form of low-interest loans with long terms or as non-repayable grants. KfW is currently primarily involved in improving municipal infrastructure (climate, water, sewage, waste disposal and local public transport). It also supports the promotion of small businesses and the use of renewable energies and energy efficiency.

In the field of education, the DAAD is active with offices in Istanbul and Ankara. All relevant political foundations have country offices in Istanbul and are involved in the areas of culture, democratization and environmental protection.

Konrad Adenauer Foundation

Friedrich Ebert Stiftung

Heinrich Böll Foundation

 

Friedrich Naumann Foundation

Rosa Luxemburg Foundation

The European Stability Initiative prepares well-founded analyzes, studies and reports on Turkey. It accompanies the transformation process and provides decision support for political actors.

TIKA

TIKA is the abbreviation for the Turkish Ministry for Development Cooperation. TIKA has been supporting projects in the fields of education, health, culture, economy and infrastructure since 2002.

Together with local partners, TIKA is active in the Balkans, the Turkic countries, Afghanistan, Africa (Tunisia, Somalia, Senegal, Sudan, Ethiopia), in the Caucasus, in Eastern Europe and in Palestine. In addition to development goals, Turkey also pursues economic interests, especially in the sub-Saharan Africa region.

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