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Turkey: A Rising Power Bridging Europe and Asia

Turkey is the land where the European and Asian continents meet. I asked Carlos von Hardenberg, who is based in Istanbul and oversees our frontier market strategies, to share his views from the center of Eurasia.

From Carlos von Hardenberg

Turkey is a dynamic country with over 73 million inhabitants, of which 75% live in cities with a median average age of 29 years.[1]Turkey has developed into a popular destination for investments not only because of its competitive export sector, particularly in automobiles and consumer goods, but also because of its large domestic consumer market. Now Asian, European and American consumer-oriented companies are moving into Turkey to capture this large and growing consumer market.

On the macro-economic front, Turkey stands out as a country that appears to be fundamentally strong, despite its chronic current account deficit arising from imports such as energy. Although inflation has been very high in the past, it has now finally come under control, which provides more confidence in the Turkish economy and its policy makers. Inflation in Turkey, as measured by the consumer price index, averaged around 8.6% in 2010 compared to an average of 72% in the years from 1993-2002.[2] The Turkish lira has been generally stable, and the central bank has enacted various initiatives to seek to ensure this stability, trying to dis-incentivize speculative inward investments (the carry trade) by keeping policy rates low.

Since the implementation of the customs union agreement with the European Union (EU) in 1996, Turkey’s trade with EU countries has grown substantially in certain areas. In particular, the Turkish automobile sector has been growing at a fast pace and has become highly competitive. Between 1999 and 2008, auto production in Turkey grew by 285% to 1.15 million vehicles per year, and a large proportion of that production was for the export market.[3] Leading international manufacturers have invested heavily in the Turkish auto sector along with local Turkish partners, and a diverse range of auto component producers have also been attracted to establish operations in Turkey. One advantage driving these investments is the skilled and well-educated Turkish labor force, a factor that has sharply improved productivity in this area over the years.

Moreover, Turkey has a healthy and transparent banking sector. After learning hard lessons in 2000-2001 when there was a near-collapse of several major banks, today, both the regulation and risk control of Turkish banks stand out as among the best in the region. Banks are generally well capitalized, and through the past years they have generally managed to keep the proportion of non-performing loans at a low-level. Today, Turkish banks serve as a role model for many other banks in emerging markets. Meanwhile, the retail banking system in Turkey has become, to a large extent, one of the most sophisticated in the world. Household indebtedness in Turkey remains comparatively low, and mortgages have just begun to develop, pointing to further growth opportunities in the coming years. Several major international banks have sought to partner with local Turkish banks for a participatory share. Further privatization of the remaining few state-controlled banks are likely to further improve the positive outlook for this sector.

The energy sector in Turkey also presents significant potential for investors. The country has begun to privatize its power generation and transmission operations, with local as well as foreign investors competing for licenses and existing infrastructure. There are plans to further develop traditional energy sources such as gas, oil and coal, as well as various initiatives to build outTurkey’s capacities in solar and wind energy.Turkey’s regional importance as an energy corridor is highly significant, not only because of the Nabucco pipeline, which will stretch all through Turkish territory, but also because ofTurkey’s proximity to swiftly developing energy-producing countries such as Iraq,Kazakhstan andAzerbaijan.Turkey is also exploring potential for its own oil and gas fields along the Black Sea shore.

Last but not least, Turkey has a large and fast-growing tourism industry and boasts a long heritage in this sector. The country has two pristine coast lines along the Mediterranean and Black Sea, with unspoiled beaches and world-class sports facilities such as golf courses and sailing marinas. Tourism income has grown year by year, and Istanbul’s Ataturk Airport acts as a major hub connecting Europe and Asia. Both transfer traffic and traffic into Turkey have grown in excess of 20% per year over the past few years.[4]

Living in Turkey, I have been struck by the country’s diversity (Turkey has more than 70 ethnic groups) and its long and colorful history. Since Ataturk’s reforms,Turkey has developed into a modern society. For centuries, it has been a country of tolerance, allowing several minorities to live freely in its territories, and it continues to benefit from this openness and diversity in many ways. Geographically at the center of Europe and Asia, with the Levant and Gulf regions at its doorstep, Turkey has realized that its orientation toward Europe is just as important as its role as a regional power in the Levantine and Gulf regions. I believe we will continue to see exciting developments and interesting opportunities in this country.


[1] Source: Turkish Statistical Institute, 31 December 2010.

[2] Source: International Monetary Fund, World Economic Outlook, April 2011.

[3] Source: International Organization of Motor Vehicle Manufacturers (OICA).

[4] Source: Airports Council International

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