Main features of economy
Turkish economy is very dynamical and it is a complex combination of modern industry and trade and traditional agriculture and crafts. Private sector is strong and in constant rise, but the state still plays an important role in base industry, banking, transport and communication. The largest Turkish industrial branch is textile industry and clothing. The biggest exporters, which are almost completely in private ownership, come from these sectors. In the last decade of the last century Turkish economy is marked by big economical growth and serious unbalances. Big financial crisis in November 2000, and in February 2001 have resulted with vulnerability of the economy, especially banking sector, and serious fluctuations and volatility of finance market (big decline of stock-market indexes at capital market, as well as decline of state reserve). Despite certain progress through implementing stabilisation program („Transitional program for strengthening of economy, April 2001) Turkish economy was still facing difficult macro economical and structural challenges including extreme strain of public debt, high inflation, problems in banking sector and with significant presence of the Government in economy. With the goal to overcome these problems government implements new mid term economic program, which resulted in a rather fast recovery, backed by IMF. Government is truly dedicated to implement the defined reforms.
Consequently, Turkey is now witness of a significant and multileveled transformation in all areas of economy, thanks to implementing radical structural reforms and measures of macro economical policy based on tight fiscal and monetary policy, which resulted in increase of productivity and continuous growth of gross domestic product in the last four years. In period of 2002-2005 cumulative growth of GDP of 33,6%, average 7,5% is noted, which places Turkish economy to sixth place of the fastest growing economies in the world. After record growth rate of 9,9% (GNP) and 9,% (GDP) in 2004, in 2005 GNP and GDP had growth of 7,6%, or 7,4%, which exceeded the expected rate at the end of 2005. Gross national product per capita in 2006 reached 7900$.
After long years of facing with very high inflation rate, Turkey succeeded to control it and decreased it from 68,5% at the end of 2001, to 29,7% in 2002 and accomplished a historical decrease of the inflation rate under 20% in 2003 (18,4%). Strict implementation of monetary policy aiming at price stability and to continuance of the decrease of inflation resulted in the decrease of inflation rate to 9,3% by the end of 2005. During 2006 Turkish financial market reflects the fluctuations on the global markets mainly caused by the raise in oil and gold prices, so a period of short term instability occurred which is usual for growing economies such as Turkish. Although the Central Bank of Turkey raised short term interest rates as an anti-inflation measure, end year inflation rate was somewhat higher (9,65%) than expected 8%.
High economy growth didn't result in increase of employment, so the unemployment rate is around 10%. High work taxes, especially high costs for social insurance, and strict control in implementing work laws result in significant percentage of unregistered activities and “informal” economy. According to the estimation around 50% of activities are performed in the area of grey economy.
It is expected that the informal economy will be reduced with the stand-by agreement between the Government and IMF, the pre-accession economy program for the period 2005-2007 and further tax and social welfare package reform.
Recovery of the economy and inflation control resulted in denomination of national currency from 1st of January, 2005, removing six zeros and implementing the New Turkish Lira, YTL. One YTL has value equivalent of 1000 000 (old) Turkish Lira. During 2005 both old and new bills were used parallel until the complete withdrawal of the old banknotes on 1st of January 2006.
After 2004, also called the year of reforms that were implemented with the goal of harmonizing with European legislation, and which was marked with a concrete move in the process of approaching to EU (defining the date for the start of the negotiations on 3rd October 2005), EC Progress Reports for Turkey for years 2005 and 2006 mark the slowing of the process of reforms, but for the first time it is evaluated that Turkey has a functioning market economy as long as it keeps maintaining the accomplishments in the filed of stabilisation. With further implementation of stabilisation policy and structural reforms it is estimated that Turkish economy will be able to deal with competition of the EU market in middle term period successfully.
Beginning of screening process/negotiations process with the EU sets demanding tasks for Turkey regarding general process of harmonization with European legislation and intensify already initiated program of economy reforms. Especially sensitive question will be agriculture and veterinary standards which, for now, are extremely low. As an agricultural country and a big manufacturer of agricultural products, once becoming the member of EU, Turkey will increase existing arable land of the Union for about 23%, and potentially can lead to serious changes in some major agricultural sectors of the EU, such as farming of cereals, fruits, vegetables and stock breeding.
Foreign direct investment inflow to Turkey has been for years far under Turkeys true potential and annually it amounted to an average of one billion USD (since 1981 till 2004 total FDI in Turkey amounts to 15,2 billion USD). Stabilisation of the economy, better results in the process of privatization of state companies, implementation of political and economical reforms, perspective of EU membership and improvement of investment climate resulted in increased trust of foreign capital. In 2006 the FDI inflow reached a record amount of 18,1 billion USD.
In the last two years Turkey continues with successful implementation of the process of privatisation which includes major state owned companies – ironworks Erdemir, airline company Turkish Airlines, rafinery Tupras and companies in telecommunication and banking sectors as well. In the area of telecommunications, 55% shares of Turkish operator Turk Telekom was sold to the Saudi Arabian Oger Telecom and Telecom Italia consortium, while the second leading Turkish mobile operator Telsim was taken over by Vodafone. During 2006 realisation of the privatisation transfers amounted to 8,01 billiard USD.
Foreign trade exchange
Turkish foreign trade exchange reached 222,17 milliard USD in 2006, which is 21,9 billiard USD more in comparison to 2005. Export increased for 15,9% and amounts to 85,14 billiard USD. When compared to 2005, import increased for 17,3% and amounts to 137,03 billiard USD. Coverage of import by export is 62,1% (in 2005 it was 62.9%).
The largest part of trade exchange is with the EU countries (51.6% import and 39,3% export), and most significant trade partners are Germany, Russia, Great Britain, USA, Italy, France and China.
Regarding the structure of trade exchange in the period of January to December 2006 on export side in the first place go to cars and parts (11,88 billiard USD), clothes (6,94 billiard USD) and various machinery and parts (6,50 billiard USD). In the same period Turkey most imported mineral fuel and mineral oil (28,55 billiard USD) and various machinery, mechanical apparatus and water-heaters (18,71 billiard USD).
Under the existing EU Customs Union Agreement all custom duties and non-custom barriers have been removed in exchange of goods between Turkey and EU countries regarding industrial products and unprocessed agricultural products. Besides annulling the custom duties, the agreement regulates implementation of equal custom policy and harmonization of the legislation in the area of competition, consumer protection, taxation and intellectual property rights. Turkey and EU implement common customs tariff for import of goods from third countries.
Structure of economy
The service sector is the most important sector of Turkish economy with 65,5% share in the GDP structure. Industry shares 24,4% and agriculture 10,1%.
Out of 22,6 million of employed persons, 29,5% work in the agricultural sector, 24,7% in industry and 45,8% in service industry.
The most significant sectors of Turkish economy are textile, food processing, automobile industry, mining (coal, chrome, copper, iron), energy, construction industry and tourism.
Macro economical indexes
2003.
2004.
2005.
2006.
GNP (bill USD)
238,4
301,6
360,4
399,7
GNP per capita (USD)
6 890
7 213
5008,0
7900
GNP Growth rate (%)
5,8
9,9
7,6
5,7
Inflation rate (%)
18,4
9,3
7,7
9,65
Export (bill USD)
47,3
63,1
73,3
85,14
Import (bill USD)
69,3
97,5
116,3
137,03
Exchange of goods (bill USD)
116,6
160,6
189,1
222,17
Unemployment rate (%)
10,5
10,3
10,3
10,8
Foreign investments (bill USD)
1,1
2,0
9,6
18,1
Source: State Institute of Statistics (TUIK), Central Bank of Turkey, Bank association of Turkey
Economical cooperation between Croatia and Turkey
During numerous meetings of Croatian and Turkish sides, both on business and institutional level, satisfaction is always expressed with accomplished level of economical cooperation, but also stressing the fact that there is still plenty of room for further development, especially in the areas of infrastructural projects, shipbuilding, pharmaceutical industry, finance and banking, transport, energy and tourism. Besides already existing cooperation and number of expressed interest of its widening in most cases there is a lack in continuity and/or further expanding of cooperation in more sustainable manner.
With the Free Trade Agreement between the Republic of Croatia and the Republic of Turkey (in force from July 1, 2003) the preconditions for wider appearance and placement of Croatian products on Turkish market were met. Existing examples of successfully realised cooperation, especially in the field of trade, as well as previous activities of Croatian companies in Turkish infrastructure (energy) market, could serve as basis for a wider action of getting closer of Turkish market to Croatian businessmen. At the same time, it can also serve for promotion of comparative advantages and opportunities that Croatian market can offer to the Turkish business. Having in mind noticeable interest of Turkish businessmen, the most certain perspectives for future Turkish investments are in Croatian field of tourism (hotels and accompanied infrastructure).
More significant economic cooperation between Croatia and Turkey could also be realised through the perspective of joint production of some goods, establishing joint ventures and representations. Regarding perspective of bilateral cooperation in the field of energy, a joint approach of Turkish and Croatian companies to third markets (Iraq, Kazakhstan, Azerbaijan) could have a significant impact.
Besides existing legislation frame, which made possible to realize the preconditions for the development of economic relations between the two countries, activities of Croatian-Turkish Business Council and Joint Croatian-Turkish Economy Committee at ministerial level give additional support for further progress.
The volume of trade exchange between Croatia and Turkey shows continuous growth and after the Free Trade Agreement came into force it increases rapidly. In 2005 trade exchange amounted to 332,7 million USD. Despite the asymmetry of the Agreement in favour of Croatia, Croatian import grows much more rapidly than export.
In first eleven months of 2006 trade exchange between the two countries amounted to 315,03 million USD, out of which 62,52 million USD was on import side and 252,50 million USD was export side.
Trade Exchange Croatia - Turkey 2002 – 2006 (in million USD)
2002.
2003.
2004.
2005.
2006.
I -XI
EXPORT
9 522
21 279
72 204
80 559
62,52
IMPORT
67 982
124 041
160 015
252 106
252,50
TOTAL
77 504
145 320
232 219
332 665
315,03
BALANCE
-58 460
-102 762
-87 811
-171 547
-189,98
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