https://www.gov.

uk/government/publications/overseas-business-risk-turkey/overseas-business-risk-
turkey

Overseas Business Risk – Turkey

1. Political and Economic

Political overview

Turkey is a secular democracy with a majority Muslim population. Its Head of State is
President Recep Tayyip Erdoğan, who won 52% of the vote in Turkey’s first direct
presidential elections in August 2014. Prior to his election as president, Erdoğan served as
Prime Minister and leader of the Justice and Development Party (AKP), a centre-right party
with Islamist roots.

The AKP, which has been in power since 2002, won a new mandate with 49.5% of the vote in
November 2015 – after a brief period of hung parliament. Three other parties are represented
in parliament: the centre left CHP (134 seats); Kurdish-focused HDP (59 seats) and the
nationalist MHP (40 seats).

The Turkish government is pursuing a strategy of infrastructure development, reform and

constitutional change.

The Kurdistan Worker’s Party (PKK), a proscribed terrorist organisation, abandoned its two
year ceasefire in July 2015. The PKK continues to launch attacks in Turkey, particularly in
the South east of the country.

The attempted coup on 15 July 2016 killed 241 and injured more than two thousand. The
government subsequently declared a State of Emergency which remains in effect.

Economic overview

Turkey is the world’s 18th largest economy with $721bn GDP. GDP per capita tripled
between 2002 and 2016 to $10,807.

Following the 2001 economic crisis, Turkey undertook major structural change in the finance
sector, which, coupled with subsequent economic and political stability, led to an average
growth rate of 5% between 2002 and 2014. In 2015 and 2016, the Turkish economy grew by
4% and 2.9%. Turkey’s economy has slowed since the failed coup attempt. The economy
contracted by 1.3% in the third quarter of 2016, the first contraction since the third quarter of
2009, before growing by 3.5% in the fourth quarter. The World Bank estimates 2.7% growth
for 2017.

The bulk of Turkey’s economy is made up of a diversified services sector including real
estate, tourism, financial services, education and health. Industry continues to play an
important role, particularly in manufacturing which accounts for a large proportion of Turkish
exports to Europe in the form of household goods e.g. BEKO and Vestel. The Turkish
government aims to decrease Turkey’s import dependency in its growth and export structure,
while increasing its capabilities to become an exporter of high technology products.
Turkey is also an important energy transit country and aims to become a European energy
transit hub. Turkey has the capacity to transport 121 million tons of oil to the world markets
per year, typically from the Middle East and Caspian to EU markets. This is roughly 3% of
annual global oil consumption. It plans to increase its energy capacity with new pipelines and
the opening of a Southern Gas Corridor for Caspian and Middle Eastern which would also
allow for gas exports to reach the EU.

More information on political risk, including political demonstrations is available on FCO

Travel Advice.

Trade and Economic relations

 Turkey is the world’s 18th largest economy (and Europe’s 6th). It aims to be in the world’s
top 10 by 2023.
 Turkey has the youngest and fastest growing population in Europe (700,000 graduates per
year).
 Istanbul’s economy alone is larger than the collective economies of 12 EU countries.
 Turkey has the world’s second largest contracting sector, after China.

Trade between the UK and Turkey has increased since 2009, reaching £10.6bn in 2015 with
the UK taking a 5% share in overall Turkish trade. There are a significant number of business
links between the UK and Turkey. Over 2,500 UK companies are currently operating here
including BP, Shell, Vodafone, Unilever (UK), BAE, Aviva and Diageo. Well-known retail
chains, including Harvey Nichols, M&S, Kingfisher and Laura Ashley also have significant
operations in Turkey.

2. Doing Business
EU accession talks are the main driver for the modernisation of Turkey’s economy and
business environment. As well as its large domestic consumer market of 74 million
(Euromonitor International), Turkey is also a springboard to the markets of central Asia and
the Middle East.

Given the existence of the Customs Union, a pre-requisite for EU accession, EU companies
do not experience the same obstacles they face in other high growth markets. However
regulatory hurdles, decision-making paralysis and sudden changes to legislation and
regulations can be frustrating. Additional duties, applied to protect domestic industry, can
apply to EU companies if their products are manufactured outside the EU.

Investors have expressed concern at frequent regulatory changes that occur with short
implementation timeframes and insufficient evaluation of the wider consequences for the
sectors concerned. Some have expressed concern over rule of law, including independence
and impartiality of state institutions.

Feedback from some Turkish companies shows that British companies are perceived as risk-
averse, over cautious and slow to make decisions. Although requisite due diligence is advised,
UK business does need to demonstrate a commitment to the market, either by having a visible
presence here or building and maintaining strong relationships. This means regular visits to
the market; and a willingness to commit to projects or business opportunities early on. This
could include demonstrating a key product- or skill-set and capability to fulfil Turkish
requirements with an indication that they are prepared to discuss and tailor the final solution
to Turkish needs. In doing so, British companies will need to be in a position to react to short
tender timelines in Turkey and be well-placed to provide defined specifics later. Turkish
companies are often interested in partnerships and knowledge transfer, rather than a purely
transactional commercial relationship.

3. Turkey’s Competitiveness and Transparency

Turkey is ranked as 69 out of 190 economies in the World Bank’s Doing Business 2016
Report and placed above many other emerging markets including India, Brazil and South
Africa. Turkey stands at 79 among 190 economies on the ease of starting a business and it
takes 6.5 days to start a business in Turkey.

Turkey ranks 55th out of 138 in the Global Competitiveness index 2016-2017 compiled by
the World Economic Forum. In 2016 Turkey was ranked in the Transparency International
corruption indicators as 75 out of 176 countries. Turkey placed higher than Brazil, India and
China, but below South Africa, Hungary and Taiwan.

New Turkish Commercial Code

The New Turkish Commercial Code (which came into force on 1 July 2012) goes some way
to addressing the need for greater transparency and reduced bureaucracy in Turkish business
as well as flexibility in directorship. Turkish companies increasingly have strong corporate
governance and social responsibility structures in place. Turkish companies are now subject to
Corporate Governance Compliance legislation and in due course conformity to international
financial reporting standards (IFRS), which should ensure increased international confidence
in the market.

4. Human Rights
The UK continues to encourage human rights reforms in Turkey to ensure that democratic and
justice standards as set out in international law are met. Turkey is a signatory to the European
Convention on Human Rights (ECHR) and in order to become an EU candidate country,
Turkey had to meet the EU political criteria. The UK supports bilateral projects in partnership
with Turkish government institutions and civil society that aim to strengthen rule of law and
rights protections. The European Commission’s most recent progress report for Turkey noted
that Turkey and the EU had developed their cooperation in a number of areas. But it described
backsliding in some areas of fundamental freedoms.

5. Bribery and Corruption

Under the UK Bribery Act, bribery is illegal and it is an offence for British nationals or
someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish
partnership, to bribe anywhere in the world.

In addition, a commercial organisation carrying on a business in the UK can be liable for the
conduct of a person who is neither a UK national or resident in the UK or a body incorporated
or formed in the UK. In this case it does not matter whether the acts or omissions which form
part of the offence take place in the UK or elsewhere.
The OECD has assessed Turkey to have made significant progress since 2007 in its efforts to
combat bribery in international business deals by fully implementing all but one of the
recommendations of the OECD’s Working Group on Bribery.

Transparency International Turkey’s recent “National Integrity System (NIS)” report

indicated that the influence of the executive over other institutions, such as legislature,
judiciary, ombudsman and media is undermining rule of law and the functioning of the
democratic process. In recent years, the reform process on anti-corruption has declined, as
amendments to the legal system framework have weakened rather than strengthened the NIS.

Visit the Business Anti-Corruption portal page providing advice and guidance about
corruption in Turkey and some basic effective procedures you can establish to protect your
company.

Read the information provided on our Bribery and corruption page.

6. Terrorism Threat
Please read the information provided in the Terrorism section of the Foreign Office travel
advice for Turkey.

7. Protective Security Advice

The Centre for the Protection of National Infrastructure also provides protective security
advice to businesses.

Crime levels in Turkey are generally quite low. The main issues are:

 Burglaries
 Demonstrations can occur regularly in major cities

8. Intellectual Property
IP rights are territorial, that is they only give protection in the countries where they are
granted or registered. If you are thinking about trading internationally, they you should
consider registering your IP rights in your export markets.

IP rights have been protected under the general rules of Turkish law since the beginning of the
Turkish Republic. Turkey is a party to a number of international agreements, conventions and
treaties related to intellectual property rights. Under Turkish law, the main intellectual
property rights that are capable of protection are patents, trademarks, registered and
unregistered designs, copyrights and confidential information.

The Turkish Patent Institute registers trademarks, patents, license agreements and such rights
upon application. The protection starts when the application is lodged with the Turkish Patent
Institute.

Read the information provided on our [Intellectual Property

(https://www.gov.uk/government/organisations/intellectual-property-office) page.
9. Organised Crime
Turkey is now viewed as a source, transit and destination country for Organised Immigration
Crime. Whilst subject to much EU criticism, Turkey works hard to house and supply several
million refugees in country. A significant portion of Turkish Coast Guard capacity is now
allocated to tackling illegal migration. This flow is now starting to have a direct impact on the
UK. There are also risks to the UK’s regional priorities of stability and rule of law. High
numbers of people crossing borders illegally increases the vulnerability of the countries
through which they pass to the effects of organised crime, drugs and people trafficking.

Turkey continues to be a prominent transit country for heroin trafficking from source country
Afghanistan to end use European countries and more recently notable in the movement of
cocaine from South America. Turkish law enforcement continue to make significant seizures
and investigate international drug trafficking, however recent efforts are also focussed on
targeting street dealers and protecting the Turkish public. Turkish Law enforcement resources
have since 15th July 2016, been focused in part on investigations into Gulenists with an
impact on resilience.

Read the information provided on our Organised crime page.

https://www.al-monitor.com/pulse/en/originals/2017/02/turkey-how-country-squanders-its-
geopolitical-edge.html

Invest in Turkey — a promotional website by the Turkish government — lists 10 main

reasons why foreign investors should put their money in the country. Highlighting
geopolitical advantages, the site describes Turkey as “a natural bridge between both East-
West and North-South axes, thus creating an efficient and cost-effective outlet to major
markets.” The country, it says, has an “easy access to 1.6 billion customers in Europe,
Eurasia, the Middle East and North Africa” and “multiple markets worth $24 trillion” in gross
domestic product.

Turkey’s role as an “energy corridor” is also highlighted: The country sits “at a close
proximity of more than 70% of the world’s proven primary energy reserves, while the largest
energy consumer, which is Europe, is located right to the west of Turkey, thus making the
country a linchpin in energy transit and an energy terminal in the region.”

The website describes also a favorable investment climate, noting that the Organization for
Economic Cooperation and Development (OECD) ranks Turkey as “the second-biggest
reformer” in terms of easing restrictions on foreign direct investment since 1997. Turkey, it
says, offers “a business-friendly environment, with an average of 7.5 days to set up a
company, while the average in OECD members is more than 15 days.” All this in addition to
“highly competitive investment conditions, strong industrial and service culture, equal
treatment for all investors, around 46,800 companies with international capital in 2015,
international arbitration and guarantee of transfers.”
Turkey’s location at the juncture of trade and energy routes linking populous markets is truly
a blessing, but how the country is using it is another question. The expert opinion is far from
flattering. Despite all the appealing factors Ankara lists, the world’s top three credit-rating
agencies — Moody’s, Standard and Poor’s (S&P) and Fitch — have all relegated Turkey to a
“non-investment” status today.

On Jan. 27, S&P lowered Turkey’s outlook to “negative” from “stable,” while Fitch cut its
credit rating to BB+ from BBB-, stripping the country of its last remaining investment grade
status with the Big Three.

This had previously happened in 1994 during a severe economic crisis. It took the country a
whole 18 years to reclaim the status in 2012, and then only four years to lose it again. As
Turkey has learned the hard way, winning credit is hard, but losing it is easy.

A wide range of factors contributed to the downgrade, as the credit-rating agencies explain in
their reports. Part of the reasons are economic. The Turkish economy has lost its impetus,
contracting 1.8% in the third quarter of 2016, with unemployment reaching about 12% and
inflation 8.5%. The dollar last year climbed 20% against the Turkish lira, atop a 25% rise in
2015, threatening hundreds of private companies with foreign exchange deficit. The declines
in domestic demand, exports and tourism revenues were among other factors that led to the
downgrade. Besides the worsening macroeconomic indicators, the Central Bank’s monetary
policy, complicated solution recipes and unreliable statements were also at play.

Still, political factors were perhaps more important in dragging Turkey into the “non-
investment” zone. Constitutional changes, expected to be put on a referendum in April,
envision a sort of one-man regime, which is heightening the risks. Fitch, for instance, listed
political and security risks on top of negative factors, noting that, if approved, the
constitutional changes “would entrench a system in which checks and balances have been
eroded.”

On Trading Economics, a website that scores the credit worthiness of countries on a

numerical index between 0 and 100, based on the Big Three’s credit ratings and
macroeconomic data, Turkey only scores 44 points.

This leaves Turkey lagging behind many countries in its neighborhood and broader vicinity.
In the Middle East, the top scorers are Kuwait, the United Arab Emirates, Qatar and Saudi
Arabia, whose points range between 90 and 86. Oman has 78 points, and Israel 76. In Eastern
Europe, another region in which Turkey is often included, the Czech Republic, Slovakia,
Estonia, Latvia and Lithuania all rank as countries good for investment, scoring more than 70
points.

The countries that score between 70 and 50 points, which could be roughly described as a
medium investment grade, include Poland, Slovenia, Bulgaria and Romania, as well as the
Turkic republics of Azerbaijan and Kazakhstan.

The “non-investment” group of those with 35 to 50 points, to which Turkey belongs, includes
European Union members Hungary, Croatia and Cyprus, as well as membership candidates
Serbia, Montenegro and Macedonia, along with Georgia and Armenia in the Caucasus and
Jordan and Tunisia in the Arab world. The bulkiest member in this category is Russia, which,
despite its political and military might, ranks as a red-flag country for investors.
Turkey still outstrips a number of countries in its vicinity that score less than 35 points and are
considered as highly speculative and risky. The Europeans in this group are Ukraine, Albania,
Bosnia-Herzegovina and Moldova, while the Asians include Iraq, Egypt, Lebanon, Pakistan
and Kyrgyzstan. For understandable reasons, two of Turkey’s neighbors — Iran and Syria —
are not listed at all.

In sum, only the wealthy Gulf monarchies, Israel and several Eastern European countries rank
as good for investment among the 40-odd nations in Turkey’s eastern and western
neighborhoods. Despite its clear geopolitical edge, Turkey amassed serious risks in several
years, marked by recklessly wasted opportunities, ill-conceived foreign policies and a drift
away from democracy, to lose its hard-won investment grade.

The need to decrease political risks is now more urgent than any economic measure. A “no”
to the one-man regime at the looming referendum may prove the most decisive step on the
way to recovery and back to the upper league.

Read more: http://www.al-monitor.com/pulse/originals/2017/02/turkey-how-country-squanders-its-

geopolitical-edge.html#ixzz4yJXo7fHZ