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Outlook On The Turkish Economy
Main Economic Indicators (2005)
GNP : $360,876 million
GNP per capita : $5,008
GNP Growth : 7.6%
GDP Composition by Sectors (%)
Agriculture : 11.9
Industry : 19.2
Services : 69.0
Over the last two decades, Turkey experienced a period of rapid change in economy, with remarkable economic development, high rates of growth and industrialization. With the abolition of barriers to foreign trade and encouragement of foreign investment and multinational companies, the Turkish economy has opened up to international competition.
The Turkish economy was remodeled in the early 1980s and put a more outward looking structural adjustment program into practice. On 24th of January 1980, a series of major economic decisions were made, which are called "January 24th Reforms". This was the beginning of the promising liberalization period.
The establishment of money and capital markets, the liberalization of exchange and interest rates and other prices have enhanced the effectiveness of monetary, fiscal and income policies.
TURKISH INDUSTRY IN GENERAL
Throughout the five-year development plan periods implemented since 1963, "industry based growth" has been one of the main objectives in Turkey. However, the industrialization strategies adopted and economic policies followed have shown great differences before and after 1980. An import substitution policy had been implemented until 1980. However, after 1980, significant progress has been made towards establishing the principles and fundamentals of a market economy through the introduction of export-oriented industrialization.
These reforms made significant contribution to the dynamism of the private sector and improved the adaptability of Turkish economy to internal and external impacts. Therefore, the source of industrial growth in recent years has been investments and the dynamism of the private sector.
As a result, industry has shown a great performance, except the years in which economic crises occurred. Considerable increases were recorded in industrial value added, in the volume of exports and share of manufacturing industry in exports. As a result of economic growth, the volume of imports especially for investment and intermediate goods has also increased.
Following a severe contraction in industry in the year 2001 as a result of the recent economic crises, signs of recovery was observed starting from the first quarter of 2002 and continued at a higher rate with positive developments in the Turkish economy. Due to recovery in domestic demand and sustained export performance, there has been a considerable increase in production and capacity utilization in the manufacturing industry since then.
Turkish industry mainly depends on the private sector activities. The share of public sector in the manufacturing industry has been decreased through privatization activities in recent years. Currently, more than 80 % of production and about 95 % of gross fixed investment in the manufacturing industry is realized by the private sector.
The main objective for the improvement of industrial sectors emphasized in the Eighth Five Year Development Plan is to increase competitiveness and productivity of the industry, and to promote and maintain sustainable growth within an outward oriented structure, in the face of increased global competition. This objective will be achieved within the framework of market principles and in compliance with international agreements.
In that respect, Turkish industry shall have a structure, in which it will utilize, as possible, domestic resources, produce in compliance with environmental norms, consider consumer health and preferences, use well-qualified labour, apply strategic management techniques, attach importance to R&D, generate technology, create original designs and trademarks and thus take its proper place in international markets.
In order to reach those targets it is of vital importance that private sector gives emphasis to investments, which aim at creating high value added, enhancing competitiveness, increasing employment, productivity and exports and enabling development and/or transfer of appropriate technologies. Foreign direct investments will certainly play an important role in that process.
Information and technology intensive industries such as defense and aviation, machinery, chemicals, electronics, software and biotechnology will be promoted, the use of advanced technologies in industry will be increased and the competitiveness of traditional industries will be enhanced.
Source: The Republic of Turkey Prime Ministry State Planning Organization
BANKING AND FINANCE
The financial system in Turkey consists of the banking sector and other areas such as insurance, leasing, factoring, and stock brokerage.
The banks carry out most of the activities taking place in both the money and capital markets. Consequently, Turkey's economic and historical development dictates that the financial system and the banking sector are virtually synonymous. Turkish finance is principally founded upon a universal banking system.
Within the framework of the "program for the transition to a strong economy" launched by the government, major reforms were carried out in the finance sector between the years 1999 and 2002. In this context, the Banking Act No. 4389 was amended in June 1999. This new law was well adjusted to international regulations, Bank of International Settlements (BIS) recommendations and European Union banking directives.
Another amendment which followed the above-mentioned one, aimed to strengthen key prudential regulations and to place the banking supervision framework on a proper foundation by increasing transparency and independence in the operation of the Banking Regulation and Supervision Agency (BRSA), as well as providing all the tools needed for the improved resolution of banks in deficiency.
The new amendments gave the authority and responsibility to restructure a bank in deficiency, to facilitate its sale in full or in part or to liquidate the remainder based on existing laws, to the Saving Deposits Insurance Fund (SDIF).
Turkey has an active and open system made up of state-owned banks and private banks. There are 47 banks operating in the Turkish banking sector, with a total of 6,322 branch offices (25.05.2006). Operating in the system, there are 13 foreign banks. The number of banks and branch offices in the Turkish banking system can be seen in detail from the following table:
NUMBER OF BANKS AND BRANCH OFFICES OF BANKS IN TURKEY (28.07.2006) |
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No. of Banks |
No. of Branch Offices |
Deposit Banks |
34 |
6,423 |
|
State-owned banks |
3 |
2,033 |
|
Privately-owned banks |
17 |
3,939 |
|
Banks under the SDIF |
1 |
1 |
|
Foreign banks |
|
|
|
Banks founded in Turkey |
6 |
441 |
|
Banks having branches in Turkey |
7 |
9 |
|
|
|
|
Development and Investment Banks |
13 |
21 |
|
State-owned banks |
3 |
4 |
|
Privately-owned banks |
8 |
15 |
|
Banks with foreign capital |
2 |
2 |
|
|
|
|
TOTAL |
47 |
6,444 |
Source: Banks Association of Turkey
In Turkey, commercial banks are not allowed to engage in two types of activities: 1- trading goods or immovables for commercial purposes, 2- leasing. In addition, investment and development banks may not accept deposits.
As part of the liberalization movements of the 1980's, reforms were made in the financial system. Some of these reforms were the establishment of the Interbank Money Market, the introduction of new tools for the regulation of liquidity, and legal arrangements to promote the development of the capital market. These reforms enable banks to offer new services by using new instruments in addition to their ordinary banking activities.
Turkish banks began increasingly operating in international markets, dealing with instruments like swaps and forward agreements. The use of new financial techniques, such as leasing and factoring, has also deepened the system.
1990 saw the beginning of electronic banking in Turkey. Turkish banks have invested heavily in computer processing and data transmission systems. Several banks have country-wide electronic networks and a number of them offer direct access terminals to their major customers.
Most of Turkish banks, including the Central Bank, are members of the Society for Worldwide Interbank Financial Telecommunication (SWIFT). Turkey joined SWIFT in March 1989 and now has a regional processor in Istanbul.
In 1992, an electronic funds transfer system was installed for direct crediting in the banking system. Coordinated by the Banks Association of Turkey and the Central Bank, the Turkish Interbank Clearing System (TIC) was launched in April 1992.
The rapid growth of consumer banking is a defining feature of Turkish banking in the early 1990s. Banks are increasingly putting emphasis on service quality because individual and retail banking are becoming the most rapidly developing sectors of their business. It also reflects the heightened competition among Turkish banks as they seek to develop high quality services aimed to satisfy client needs better.
The introduction of credit cards to Turkey dates back to the late 1960s, but Turkish banks started issuing credit cards in August 1988. As of end April 2006, there are 30,438,883 credit cards in Turkey. Of these cards, VISA and MASTERCARD dominate the sector with a 99.9 percent share.
Another significant development, which began in 1992 following the related notification of the Capital Markets Board, was the "Asset Backed Securities" policy. This financial instrument was intensively used by some Turkish banks during 1995. Another development includes the rapid spread of Automatic Telling Machines (ATMs) and Point of Scale (POS) terminals. As of end April 2006, 15,036 ATMs and 1,196,579 POS terminals were installed.
The first attempt to sell Government securities through periodic auctions started in 1985. Following this, the Interbank Money Market for Turkish Lira was established in March 1986, Open Market Operations were started in February 1987, Foreign Exchange and Foreign Banknote Markets were established in April 1989. During 1995 the Gold Exchange started to operate in Istanbul taking the place of the Central Bank's Gold Market.
The banking sector has been supported with the contributions of the above-mentioned market and has made more transactions by utilizing new financial instruments in the capital market including mutual funds, asset backed securities, Government papers and private sector securities. Banks have the chance to distribute clients' portfolio risks to broader investment areas.
FOREIGN TRADE
The leading item of Turkey's export is manufacturing goods with a share of 82%, followed by agricultural products (11%) and mining products (%6). Turkey's imports are composed largely of manufacturing products (67%), followed by mining products (24%) and agricultural products (6%).
Following the Customs Union with the EU (January 1996), Turkey's foreign trade regime has been aligned with that of the EU.
The Customs Union covers only industrial and processed agricultural products. Traditional agricultural products are outside the scope of the Customs Union. Concerning processed agricultural products, the parties have agreed on establishing a system in which Turkey would differentiate between agricultural and industrial components of the duties applied on these products, which is similar to the model applied in the Community.
For products imported into Turkey from third countries, Turkey started to apply rates of protection specified in the Community's Common Customs Tariff, except for products classified as sensitive.
Turkey adopted other arrangements for harmonization with the Community's Common Commercial Policy including common rules on import and export, inward and outward processing, standardization of foreign trade and administration of quantitative restrictions.
The leading export partners of Turkey in 2005 are Germany, Italy, the UK, the USA and France respectively; while the Russian Federation, Germany, China, Italy and France are the leading import partners.
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|
2001 |
2002 |
2003 |
2004 |
2005 |
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Exports (Million $) |
31.334 |
36.059 |
47.253 |
63.121 |
73.390 |
|
Imports (Million $) |
41.399 |
51.554 |
69.340 |
97.540 |
116.537 |
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Foreign Trade Volume (Million $) |
72.733 |
87.613 |
116.593 |
160.661 |
189.927 |
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Balance of foreign trade (Million $) |
-10.065 |
-15.495 |
-22.087 |
-34.373 |
-43.144 |
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Rate of imports covered by exports (%) |
75,7 |
69,9 |
68,9 |
64,9 |
63,2 |
The Turkish Import Regime of 2005
The Import Regime of 2005, reflecting both Turkey's international rights and obligations and the country's economic needs, has been prepared by taking into account the agreement establishing the World Trade Organization (WTO), the Customs Union Agreement between Turkey and the European Union, the free trade agreements signed with various countries, the preferential treatments granted by Turkey to the least developed countries and some developing countries within the framework of generalized system of preferences and also the specific needs and requirements of the agricultural and industrial sectors .
Turkey maintains a transparent and open trade regime. The clarity of the Import Regime is ensured by indicating the rates of the customs duties separately for countries and country groups and the products are classified under five lists. Namely;
. Agricultural products (List: I )
. Industrial products (List: II )
. Processed agricultural products (List: III )
. Fish and fishery products (List: IV )
. Suspension list (List: V )
In addition, the changes made by the Undersecretariat of Customs on the tariff nomenclature and/or descriptions of the items for the year 2005 are taken into consideration and related amendments and arrangements are made in all the lists and communiques annexed to the Import Regime.
The Import Regime is published in the Official Journal, dated 31 December 2004 and No: 25687 ( bis 2 ), came into force as of 1 January 2005 .
The main features of the 2005 Import Regime Decree can be summarized as follows:
Amendments in Agricultural, Processed Agricultural and Fish-Fishery Products:
Turkey has concluded various free trade agreements and the preferential treatments accorded to these countries in agricultural , processed agricultural and fishery products are reflected to the annexed lists of the Import Regime Decree.
Customs duty rates on agricultural products in List : I and on fish and fishery products in List:IV, has been rearranged by taking into consideration the demands of the sectors, views of the relevant institutions and organizations and Turkey's commitments arising from the international agreements .
The customs duty rates applied on the industrial components of the processed agricultural products which are indicated in List III are aligned to the EU's common customs tariff rates.
Amendments in Industrial Products:
Regarding the provisions of the Decision No:1/95 on the EU-Turkey Customs Union, Turkey has to apply simultaneously the EU common external tariff (CET) for most imports of industrial products and for the industrial component of processed agricultural products imported from the third countries. In this context, tariff reductions of the EU's towards the third countries has been reflected by Turkey to the products covered in List: II of the Import Regime Decree.
Also according to the provisions of the Customs Union Agreement ,Turkey has to align itself with the EU's preferences under the Generalized System of Preferences (GSP) which regulates autonomous customs duty preferences in favor of the least developed countries and some developing countries. The EU's such tariff preferences to these countries are reflected List II of the Import Regime Decree.
As is known, Turkey enacted a new Decree on August 25, 2004 with the major aim of completing its obligations and aligning itself to the EU's GSP Regime . With this new Decree all industrial products covered by the EU's GSP Regime are included into Turkey's GSP. As a result Turkey has fully completed the adoption of the EU's GSP Regime in terms of countries and products.
In addition, in order to increase the competitive capacity of the domestic producers, the "suspension list" has been rearranged in cooperation with the EU and those goods are indicated in List-V. This List shows either reduced or mostly suspended customs duties applied to imports of certain products predominately used as raw material or intermediate inputs in chemical and electronic industries.
End use products of the European Union, has been indicated in Lists I, II and V with the symbol (a) added to the end of the item description.
The 20 Import Communiques appended to the Import Regulation arrange imports with regard to the public order, public moral and public security, the preservation of the human, animal and plant health, the protection of the environment, consumer rights as well as the import policies in force and the international agreements.
Source: Undersecretariat of the Prime Ministry for Foreign Trade
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