Where Is Turkey’s Economy Going?
Luqman Hma Salih and Mark Johnson | Exclusive to Ekurd.net
According to the Economic Complexity Index (ECI), Turkey is the 27th largest export economy in the world and was the 52nd most complex economy in 2019. However, it has the largest economy in Eastern Europe, the Balkans, the Black Sea basin, and the Middle East. At the same time, it is the European Union’s sixth-biggest trading partner, the world’s seventh-largest emerging economy, and the European Union is the largest trading and investment partner of Turkey.
The top export destinations of Turkey are Germany, $17.4 billion, the United Kingdom, $10.1 billion, Italy, $9.4 billion, the United Arab Emirates, $9.2 billion, and Iraq, $9.1 billion. On the other hand, the top import origins are China, $23 billion, Germany, $22.5 billion, Russia, $13.2, billion, Italy, $11.4, billion, and the United States, $11.3 billion. Germany is an important trading partner with Turkey because more than 4 million Turkish people live in Germany and many do business in Turkey. Turkey also exports many items from China that is due to China making a monopoly of the Middle East and the European market.
Yet, Foreign Direct Investment (FDI) flows into Turkey and has rarely reached $ 1 billion in any one year, a fraction of the level of FDI attracted to countries of comparable size and development like Argentina and Mexico, and only one quarter the level of FDI attracted to Poland. The stock of FDI in Turkey was only $300 million in 1971. The top investments in FDI flowed to Turkey, and it grew rapidly from the mid -1980’s, expanding to $ 1 billion by 1990. It increased to $2.5 billion by 2000. The amount has achieved at $2.7 billion by 2019. The UK had an investment share of 11.90%. Netherlands is the second largest investor in Turkey with 11.90% shares. The United States has 9.30% shares. However, there is an increase in investments made by American firms this year. According to the State Department’s analysis on Investment Climate and Country Commercial Guide announced by the International Trade Administration, Turkey’s best industry sector for investment is the civilian aerospace industry.
Turkey’s economy is in the transition from a high degree of a heavy industrial economy to a more diverse economy with an increasingly large and globalized services sector. But for some time that economy has suffered, so Turkish government pushed to get help from the World Bank. In the 1990s, Turkey’s economy suffered from a series of coalition governments with weak economic policies, leading to high inflation boom and bust cycles that culminated in a tricky banking and economic crisis in 2001 and a deep economic downturn.
Turkey concluded that structural change owed little to industrial policy. The effectiveness of the Turkish economy in the last decade does has limitations. Even though exports have increased and diversified substantially, the degree of sophistication of export products is not very high. For example, the share of products with high technological content is still very low. Moreover, there is also evidence that, especially those sectors that have expanded most rapidly in the last decade have relatively weak backward linkages and import a relatively large portion of inputs such as raw materials and components.
A radical economic program was launched in January 1980. Hence the 1980s witnessed a fundamental transformation in the economic policy regime from import substitution industrialization towards trade liberalization. Capital account liberalization was enacted in 1989 and implemented in 1990. A major step towards further liberalization was undertaken in 1996 through a Custom’s Union with the European Union. Between 40-50 % of Turkey’s exports in the last decade and a half have been made to EU countries.
Between 2002-2010 Gross Domestic Product (GDP) in Turkey grew at an average rate of 5.1%. The ratio of net public debt to GDP was reduced from 66 % in 2001 to an average of 30% in 2008-2010. During the last five years, the Turkey’s exports of have increased at an annualized rate of 0.9%, from $161 billion in 2012 to $166 billion in 2017. The most recent exports are led by automobiles which represent 7.92% of the total exports to Turkey, followed by gold, which accounts for 4.18%. Also, during the last five years, the imports of Turkey have increased at an annualized rate of 1.1%, from $205 billion in 2012 to $214 billion in 2017. The most recent imports are led by gold which represents 7.95% of the total imports of Turkey, followed by Refined Petroleum, which accounts for 4.56%.
With the situation that is mentioned above, Turkey’s economy has recovered strongly from the 2001 recession thanks to good monetary and fiscal policies and structural economic reform made with the support of the International Monetary Fund and the World Bank. This helped result in the independence of the Central of the Bank and a floating exchange rate system has been put in place while the government’s overall budget deficit has been substantially reduced. Turkey’s economy grew an average of 6% per year from 2002 through 2007. Despite the 2008 global contraction, the growth target was 5%.
Since 2018, Turkey has challenged economic problems that have fueled speculation about a possible crisis that could impact Erdogan’s status and domestic political stability. An increasingly less independent central bank intervenes periodically to stimulate the economy but worry persists about a decline in the rule of law in Turkey. For example, external financing needs and significant corporate debt and the possibility of Unites States sanctions regarding the S-400 purchase, the Hal Bank case, or Syria. The COVID-19 outbreak and accompanying economic slowdown are having a major impact on Turkey’s economy. As of early April 2020, the value of Turkey’s currency sharply declined amid the pandemic and longer-term outcomes are unclear.
Luqman Hma Salih, a Kurdish writer and student in the Minnesota State Community and Technical College in USA. Salih is a senior contributing writer for Ekurd.net, see below.
The opinions are those of the writer and do not necessarily represent the views of Ekurd.net or its editors.
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